Retiring in 2025: Are You Ready?

If you’re thinking about retiring in 2025, you’re not alone. Many people are starting to ask themselves the big question: “Can I retire this year?” While it’s tempting to focus on your age or savings while retirement planning, the real answer involves a deeper dive into your finances, emotional readiness, and lifestyle.

Signs it might be time to retire

In 2024, the average age of retirement in the U.S. was 62, according to a survey by MassMutual. But when it comes to your retirement, age is just a number. Reaching 62, 65, or 67 doesn’t mean you’re ready to retire.

For many people, the decision to retire follows significant changes in their personal or professional lives. In my experience, some of the most common signs that it’s time to retire include:

You’re burnt out or dissatisfied at work

Maybe you love your workplace or have always been passionate about your role … until now. Big changes like a buyout, looming layoffs, or a new manager – and even small changes to company policy or culture – can cause a lot of unnecessary stress. It’s not unusual for people in this position to finally feel ready to quit their job.

Your priorities have shifted

You might want to spend more time with new grandkids, travel while you’re still in good health, or finally gain more control over your daily routine.

Your health or circumstances push you out the door

Sometimes, health issues or job loss force people out of their job before they feel ready to retire. If this happens, you’ll need to assess whether you’re financially and emotionally prepared to make the leap into full retirement or if you will search for a new full- or part-time position.

A goal I set for my clients is to plan your retirement so you can retire on your own terms and timeline – not when your mind or body forces the decision.

Are you financially ready to retire this year?

As a financial advisor, it’s no surprise that I believe the cornerstone of retirement planning is understanding your financial picture, though it’s not all about the size of your nest egg. The biggest financial question to answer before retirement isn’t how much you can afford to spend, but how much you need to spend. Here’s where to focus:

Calculate your expenses

Check your spending

Do you really know how much you spend every month? I find that many people underestimate their monthly spending by as much as half, which can make or break your retirement plans.

I recommend you look back up to 12 months to capture all your annual recurring expenses. Look forward, too. Do you expect to need a new car next year? Or a new roof in three years? It’s worth taking the time to be thorough!

Include the cost of health care

It’s a common misconception that Medicare is free. Medicare Part A, which covers hospital stays, nursing facility care, and hospice has no premium (you paid for it in every paycheck), but the rest comes at a price. Whether you retire early and purchase private health insurance, or are 65 using Medicare, expect to pay premiums and out-of-pocket expenses throughout your retirement.

Don’t forget about taxes

That’s right. Even in retirement, you’ll owe income taxes on withdrawals from your pre-tax accounts and on Social Security benefits and other income sources.

Expecting the unexpected

Emergency home repairs, medical events, runaway inflation, recessions, family events, and other surprises can’t be predicted but can be planned for. Make sure you leave room for the unexpected in your retirement plan.

Know your income sources

How will you draw your retirement income? Most retirees today don’t have just one source of income. Your retirement income may come from a mix of sources including:

• Social Security benefits
• Pensions and annuities
• 401(k), 403(b), and traditional IRAs
• Roth IRAs and other post-tax investments
• Savings accounts
• Business sale proceeds
• Rental properties
• Part-time work

Your age, account balances, and tax bracket will determine when you pull from certain retirement savings and what percentage of your income will come from each source every year.

Plan for longevity

If you’re retiring at 62 instead of 70, it’s even more important to have confidence that your retirement savings will last. 

It may seem obvious but consider this:  retiring a year earlier doesn’t only mean you’ll need one more year of retirement savings – you’re giving up a year of income, likely at the top of your earning years. This can impact your Social Security benefit (based on your 35 highest-earning years) and your spending power because, as many retirees find out, it’s a lot easier to earn your salary than it is to save that same amount.

Filling Your Days: The Secret to Retirement Happiness

Retirement isn’t just about financial stability—it’s also about maintaining your sense of purpose, holding on you your identity, and staying active and healthy long term. The people who make the most successful retirement transitions are those who already have social engagements and hobbies outside their career. 

Explore hobbies, travel, or volunteering opportunities before you retire

Tomorrow is never guaranteed, so I encourage my clients not to wait for retirement to start pursuing their interests. 

Besides making sure you don’t miss out on life’s experiences, dipping your toe into new interests before retirement helps you to determine whether those activities are as fulfilling as you expected. For example, maybe you wanted to spend your retirement traveling the globe, only to find out you’re much happier here at home.

Traveling while you’re still working has a financial advantage, too. After all, if you’re using PTO, you’re literally getting paid to travel. 

Have a “trial retirement” by taking a sabbatical or moving to part-time work

Most employees work roughly 2,000 hours a year, or 160 hours a month. Do you really know how you’ll fill that time in retirement?

I typically recommend that soon-to-be retirees take an extended leave or reduce their hours before taking the plunge. This will give you a better sense of how you’ll spend your time and whether the activities you envision will fill your days in a meaningful way.

Explore your identity beyond your career

Roughly half (51%) of American workers said their job gives them a sense of identity (according to a 2016 survey by Pew Research). That number increases to 62% for self-employed workers and individuals in health care, 65% for those working in the nonprofit sector, 67% for government employees, and a staggering, though not surprising, 70% of those working in education. 

I encourage you to consider how you view yourself today and who you want to be tomorrow before reaching retirement because you are far more likely to feel empty or isolated in your later years if your life and identity remain centered on your job.

Think about how you’ll maintain social connections

If you work full time, you may be spending 160 hours a month with your coworkers (love them or hate them, they’re still keeping you company). In a 2024 survey, about 2/3 of employees (66.22%) over age 54 reported having at least one close friend at work.

If you’re approaching retirement and not currently engaged in community building activities outside of work, I strongly recommend you begin exploring your options now. Some great options for building new social networks and finding fulfillment include:

• Volunteering for a cause you care about
• Joining a choir, community orchestra, or theater troupe
• Attending events at your local senior center
• Joining a local hobby group
• Attending classes and workshops on topics that interest you
• Signing up to be a museum docent or theater usher
• Making recurring plans with other retirees in your community

Critical retirement milestones

I know I said, “age is just a number,” but in retirement, certain age milestones play a significant role in your expenses and income streams. Whatever your age, what matters most is whether you’re financially prepared to retire.

Retirement accounts unlock at 59 ½ years

With most retirement accounts, like traditional IRAs, Roth IRAs, and 401(k), 403(b), and 457 plans, making withdrawals before you reach age 59.5 will incur financial penalties. There are some exceptions that apply to select 401(k)s, 403(b)s, and 457 plans that allow for penalty free withdrawals at 55. If you’re retiring earlier, non-retirement investments and savings accounts are crucial.

Social Security retirement eligibility starts at age 62

If you were born on or after January 2, 1960, you won’t be eligible to receive your full Social Security retirement benefit until you reach 67. While you can begin collecting your benefit as early as age 62, you’ll greatly decrease the monthly benefit you can receive for the rest of your life, so consider this decision carefully.

Medicare eligibility begins at age 65

If you’re planning to retire before 65, you’ll need to secure your own health insurance. 

67: The full retirement age

If you were born on or after January 2, 1960, you become eligible for your full Social Security retirement benefit at age 67.

 Claim maximum Social Security benefits at age 70

The longer you wait to collect Social Security retirement, the larger your future monthly benefit check becomes – until age 70. Waiting until 70 to collect could make your Social Security checks up to 24% bigger. 

Required minimum distributions (RMDs) start between 70 and 75

If you were born in or after 1960, you may be required to make specific withdrawals from your retirement accounts starting at age 75.

When is the best time of year to retire?

In my opinion, the best time to retire is when you’re ready, which will be different for everyone. However, if you’re ready to retire, but are struggling to set a final retirement date, it may be helpful to consider the following:

Retirement timing for lower taxes

If you’re a high earner, retiring at the start of the year instead of the end helps keep your income for that year low, meaning you’ll owe less income tax. This is especially helpful if you’re planning to check a lot of expensive items off your bucket list right away.

Retirement timing for job satisfaction

You may time your retirement to help your colleagues meet a big deadline, or you might opt to call it quits early to avoid the busy season.

Retirement timing for your family

You may wish to time your retirement so you can travel for a family occasion or spend time with a newborn grandchild. Or perhaps your spouse is scheduled to retire, and you want to retire at the same time.

Retirement timing for your lifestyle

If you’re a winter person like me, you might choose to retire into the winter so you can pursue your favorite sports (mine is snowmobiling) while the snow lasts. For many in the Berkshires, summer is the ideal retirement season because it frees you up to enjoy everything the region has to offer.

Key takeaways: What to do if you’re planning to retire in 2025

Three key steps for people retiring in the next 12 months

Understand your expenses and income

If you’re going to retire in 2025, it’s critical that you know your expenses and income. Look at monthly and long-term expenses, expect the unexpected, and have a clear view of where your money will come from – whether it’s Social Security, investments, pensions, or some combination. And don’t forget about taxes in retirement!

Have a health insurance plan

Determine how you’ll cover healthcare costs in retirement. This is especially important if you’re retiring before Medicare eligibility begins (at 65).

Fill your days with purpose

Find something meaningful to keep you active, healthy, and engaged. Hobbies, social activities, and part-time work are all good options for finding fulfillment in retirement.

Four things to know if you’re retiring in the next 6 months

If you’re within 6 months of your retirement date, it’s even more important to have answers to these crucial 4 questions:

1. What is your plan for health insurance?
2. How will you withdraw the money you need to pay your bills?
3. Will you claim Social Security when you retire or at some point in the future?
4. Is your estate plan up to date?

Get professional help with your retirement plans

As a financial advisor and Certified Financial Planner professional, I know the value of having a clear retirement plan and the importance of following through with it. If you are looking for a retirement planning partner, or simply have questions about how to get retirement ready this year, I invite you to schedule a free 15-minute chat with a member of our team.