On the long journey to retirement, eventually you will be faced with perhaps the most important question of all: when should you actually retire? After decades of saving and investing, you will hopefully notice that your Self-Directed IRA is full of investments and funds that can give you a comfortable living while you exit your work. But in the flight plan that is your retirement strategy, there may be nothing trickier than sticking that landing.
What’s more, the concept of “retirement age” is always changing. It used to be when people could collect social security. But as the average lifespan has improved, the idea of retiring at age 62 sounds more like early retirement than ever. Let’s look at some of the most important age milestones in your Self-Directed IRA strategy and see when the timing might make sense for you:
Important Retirement and Self-Directed IRA Milestones
To give you the proper context for what retirement age really is, here are some of the most important milestones:
- Age 59 ½: At this age, you no longer have to take distribution penalties when receiving distributions from your retirement account. For many purposes, this is “retirement age” for people who already have lots of money in their Self-Directed IRA and are ready to start taking those distributions.
- Age 70 ½: The age at which you are required to begin taking minimum distributions—known as Required Minimum Distributions (RMDs)—from your retirement.
For most people, this at least provides a window for retirement goals. You do not have to start taking distributions at age 59 ½, for example; you can still go on collecting money in your retirement accounts, so you have more money in them when you are required to take those distributions out about a decade later.
The Circumstances of Retirement
Of course, the actual age of retirement may be completely different for some people. There are gung-ho investors who minimize their spending for early retirement, known as the Financial Independence / Retire Early (FIRE) movement. Many of these individuals can retire in their 30s and even 40s.
But such a lifestyle would require extreme sacrifice and an early start. If you need to catch up on your retirement goals, you can even take advantage of higher limits as you age. For example, in 2019, the total contributions toward Traditional IRAs and Roth IRAs are $6,000 allowable for people under 50. But if you are 50 and older, you can contribute up to $7,000.
This goes to show that the circumstances for retirement will be different for everyone. And for many, it’s not an age that determines when you should retire, but rather an investment number.
The “4%” rule refers to the time at which you hit financial independence. Theoretically, once you reach a point where 4% of your net investments equal your living expenses, you then have a nest egg large enough to sustain your lifestyle in retirement. The FIRE movement often focuses on this 4% rule to retire as quickly as possible.
With well-placed investments, you should hopefully make more than 4% average every year on your investments. And with a Self-Directed IRA, you can also supplement your overall investments with cash flow from a real estate investment. But the idea of focusing on an amount of money rather than an age makes sense for many.
It’s good to set goals for yourself, especially ambitious ones. But there is not any magic number in which you will know you are perfectly ready for retirement. It ultimately comes down to strategy. What kind of retirement do you want to have, and when will you be ready to start enjoying it?