Retirement Age
Age at which client stops working and transitions to retirement income. Determines when wage income ends, retirement withdrawals begin, and Social Security claiming becomes available. Typical range: 62-70 years.
How it works
Retirement age is the pivotal point in financial planning where earned income stops and portfolio withdrawals begin. It affects how long you have to accumulate savings, how long savings must last, when Social Security is available, when RMDs begin, and Medicare eligibility. Earlier retirement requires larger nest egg, later retirement allows more accumulation time and higher Social Security benefits.
1. Determine Income Cessation Year
Calculate the last year of earned income (wages, self-employment, business income). This is typically the year BEFORE the retirement year. For example, retiring at age 65 in 2030 means last year of wages is 2029. All employment income projections stop at this point.
Last Work Year = Retirement Year - 1
Example: Client age 60 in 2025, plans to retire at 65 → Last work year: 2029 (age 64) | Retirement year: 2030 (age 65)2. Calculate Years to Retirement
Determine how many years remain to accumulate savings. More years = more contributions, more compound growth, lower required savings rate. Fewer years = need to save more aggressively or delay retirement. This is the 'accumulation phase' of retirement planning.
Years to Retirement = Retirement Age - Current Age
Example: Current age 45, retirement age 65 → 20 years to save | At 8% return, $1k/month grows to $590k3. Activate Retirement Income Streams
Starting in the retirement year, begin systematic portfolio distributions as retirement income. Distribution amount typically based on withdrawal rate assumption (4%) applied to portfolio value at retirement. This replaces wage income and supplements Social Security and pension income.
Annual Retirement Distribution = Retirement Portfolio × Withdrawal Rate
Example: Retire at 65 with $1.5M portfolio, 4% withdrawal rate → $60,000/year income from portfolio4. Coordinate with Social Security Age
Retirement age and Social Security claiming age are independent decisions. Can retire at 62 but delay Social Security until 70 for maximum benefit. Early retirement before Social Security requires larger portfolio to generate sufficient interim income. Must coordinate both income sources for optimal tax planning.
Example: Retire at 62, delay SS until 70 → Portfolio generates full retirement income ($60k/year) for 8 years before SS begins5. Impact on Required Portfolio Size
Earlier retirement dramatically increases required portfolio size: fewer years to accumulate, more years of income distributions needed, potentially lower Social Security (if claimed early). Delaying retirement 3-5 years can reduce required portfolio by 25-40%. This is the most powerful lever in retirement planning after savings rate.
Required Portfolio = Target Annual Income / Withdrawal Rate
Example: Retire at 62 targeting $80k/year: Need $2M (3.5% safe rate) | Retire at 67 targeting $80k/year: Need $1.2M (4.5% safe rate, 40% less!)
Real-world context
Full Retirement Age (FRA) for Social Security
Social Security Full Retirement Age is 66-67 depending on birth year (67 for those born 1960+). This is different from your chosen retirement age. You can claim as early as 62 (30% reduction) or delay until 70 (24% increase beyond FRA). Retirement age and SS claiming age are independent decisions with different tradeoffs.
IRS reference: Social Security Administration retirement age tables
The 'One More Year' Phenomenon
Working one additional year has three benefits: (1) One more year of contributions ($30k contribution + $20k employer match = $50k), (2) One more year of compound growth (~$75k portfolio growth), (3) One fewer year of withdrawals (~$60k not withdrawn). Total impact: ~$185k per additional year worked. This is why many advisors suggest 'one more year' when retirement readiness is uncertain.
Early Retirement Portfolio Requirements
Retiring at 55 vs 65 requires saving 50-75% more due to: (1) 10 fewer years to save/grow portfolio, (2) 10 more years of income distributions needed, (3) 7-10 years before Social Security eligible, (4) 10 years before Medicare (expensive private insurance). Early retirement at 55 typically requires 25-30× target annual income versus 15–20× at age 65.
Required Minimum Distributions (RMDs)
RMDs begin at age 73-75 (depending on birth year) regardless of retirement age. If you retire at 55, RMDs don't start until 73. If you work until 75, RMDs begin immediately upon retirement. RMD age is fixed by law, retirement age is your choice. Must coordinate both for optimal tax planning.
Healthcare Bridge (Pre-65 Retirement)
If retiring before 65 (Medicare eligibility), need healthcare coverage. Options: COBRA (18-36 months, expensive), ACA marketplace (~$1,000-2,000/month for couple with subsidies), spouse's employer coverage, or retiree health benefits (rare). Healthcare costs often add $15,000-25,000/year to early retirement income requirements.
What drives the result
Sets the age when wage income stops and retirement income distributions begin. Earlier age requires larger portfolio due to more years of distributions and fewer years of contributions. Every year delayed reduces required portfolio size by 5-8% and increases Social Security benefits by 6-8%.
Target $80k/year: Retire at 62 → Need $2M | Retire at 65 → Need $1.5M | Retire at 67 → Need $1.2M (40% reduction from 62 to 67)
When to start claiming Social Security benefits (independent of retirement age). Can retire at 62 but delay claiming until 70 to maximize benefits. Gap between retirement age and SS age must be covered entirely by portfolio income distributions. This coordination is critical for optimization.
Retire at 62, claim SS at 62: $2,000/month SS | Retire at 62, delay SS to 70: $3,200/month SS but need $480k more in portfolio to generate bridge income
Combined with retirement age, determines length of retirement period (distribution phase). Earlier retirement with same life expectancy means longer retirement period requiring larger portfolio. Retirement age 62 to 95 = 33 years of income distributions vs age 67 to 95 = 28 years.
Age 62-95 (33 years): 3.5% sustainable withdrawal | Age 67-95 (28 years): 4.0% sustainable withdrawal
Assumptions
- Retirement date is known and fixed (reality: may be forced earlier by health/layoff)
- Wage income stops completely at retirement (reality: many work part-time or consult)
- Portfolio sufficient to generate desired retirement income at chosen age
- Health allows work until planned retirement age
- No return to workforce after retirement begins
- Medicare available at 65 for healthcare (if retiring before 65, need bridge coverage)
Limitations
- Does not model phased retirement (gradual reduction in hours)
- Does not account for forced early retirement (layoff, disability)
- Does not model post-retirement income (consulting, part-time work)
- Assumes single retirement date (both spouses may retire at different times)
- Does not model healthcare costs between retirement and Medicare (age 65)
- Does not consider pension eligibility rules (may require specific retirement age)
Related
This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.