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For American homeowners, the ideal retirement age is 63, according to a 2024 study. However, retiring before the full retirement age of 67 can significantly reduce your Social Security benefits, creating a potential financial gap that makes affording ongoing housing costs a primary challenge. Strategic financial planning is essential for homeowners who wish to retire at their desired age without being forced to sell their property.
A recent survey by F&G indicates that 70% of workers are considering delaying retirement, a trend driven largely by rising housing expenses. For the 75% of older adults who wish to age in place, according to AARP, proactive steps are necessary to ensure their home remains affordable long after their paycheck stops.
The demographic of homebuyers is shifting. The National Association of REALTORS® reports the median age of a repeat buyer is now 58. This means a significant number of homeowners will be carrying a 30-year mortgage well into their 80s. Baby boomers, who hold nearly half of the nation's real estate wealth, are both the largest group of buyers and sellers, highlighting the financial pressures they face.
While Social Security provides a foundation, it is often insufficient for homeowners. An analysis comparing median Social Security benefits with living costs found that these benefits are enough to cover expenses in only 10 states. This is calculated based on claiming at your Full Retirement Age (FRA), which is 67 for those born in 1960 or later. Retiring earlier, say at 63, reduces your monthly benefit, widening the financial gap.
The key is to calculate your specific retirement needs realistically. Financial advisors often reference the 4% rule, a guideline suggesting you can withdraw 4% of your retirement savings annually without depleting your nest egg too quickly.
To use this rule, first estimate your annual retirement expenses. This must include:
For example, if your total annual expenses are $65,000, you would divide this by 4% (0.04).
This calculation suggests you would need a nest egg of approximately $1.625 million to sustain your lifestyle, including homeownership costs, throughout retirement.
To bridge the gap between your savings and your goals, consider these actionable strategies:
Review Your Mortgage Payoff Timeline: Contact your lender to understand your exact payoff date. If you plan to retire before your mortgage is paid off, factor those monthly payments into your retirement budget. Exploring options to refinance to a shorter-term loan earlier in your career can be beneficial.
Plan for a Long Retirement: With life expectancy around 78, plan for a retirement that could last 25-30 years. Use a retirement calculator to model different scenarios, especially the impact of claiming Social Security before your FRA. Retiring at 63 instead of 67 can reduce your monthly benefit by roughly 30%.
Invest to Outpace Inflation: Simply saving is not enough. Based on our experience assessment, you will likely need a portfolio that earns at least 4% annually to keep pace with inflation. Discuss with a financial planner how to maintain a growth-oriented investment strategy that aligns with your retirement timeline.
The most critical step is to begin strategic savings as early as possible. By realistically assessing your future housing costs and creating a diversified financial plan, you can increase your chances of retiring on your own terms and in the home you love.
