What Is Retirement and How to Get There

senior couple looking at tablet
••• Tara Moore/Taxi/GettyImages

Retirement, according to the dictionary, is to “withdraw from one’s position or occupation or from active working life.” You can achieve retirement when you have sources of income that do not have to be earned by working.

Retirement and the term “financial independence” are often used interchangeably. Both are achieved when you have enough savings, investment income, and/or pension income to cover your living expenses. Work becomes optional!

History of Retirement

Retirement is a relatively new concept that has come about as life expectancy has increased. One hundred years ago, the concept of retirement did not exist.

The History of Retirement Planning explains how our modern day concept of retirement began due to a combination of increased life spans and the onset of government government-sponsored benefits in 1935 when Social Security was created.

Prior to such programs, people worked their entire life, and if they were unable to work their family was expected to provide for them.

Retirement Age

There is not a mandatory retirement age in the United States. Standard retirement age is considered to be 65, but under today’s rules, Social Security defines what they call your full retirement age based on your date of birth, and it is not the same age for everyone. In general, retiring before age 60 would be considered an early retirement.

How to Achieve Retirement

To achieve retirement you need to either start saving young (in your 20’s or 30’s) and save at least 10% of your income each year, or if you start saving late (in your 40’s and 50’s), you’ll have to save a large portion of your income, as much as 50% a year. 

Many people are unwillingly to make the lifestyle changes they would need to make in order to save enough to afford a comfortable retirement.

One alternative is to consider part-time retirement, where you find work that you enjoy, even if it pays less. Ideally this work pays enough to cover your living expenses, and gives your retirement money time to continue to grow before you have to use it for income.

Many Fall Short

Although most people have dreams of being able to retire in some capacity, numerous studies have found that the majority of Americans don't have enough saved to stop working. With pension funds in jeopardy and Americans not saving enough on their own, future retirees may find themselves working longer than they would wanted if they don't save more during their pre-retirement years.

How to Invest Your Retirement Money

As you get closer to retirement you will want to monitor your retirement investments closely. Take time to learn basic investing concepts so you understand how your retirement investments produce income for you later in life and how much income they might produce.

You will also need to decide if you want to keep most of your retirement money in safe investments or allocate it across many different types of investments.

Biggest Retirement Decisions You Will Make

One of the biggest decisions you will make is when to retire. Another is how much to spend in retirement. You will also have to decide when to start taking Social Security, and contrary to popular belief it is not always best to take it early, and you do not have to take it as soon as you are eligible—you can often get more benefits by waiting.

If you a have a pension, you will have some permanent pension decisions to make such as decideing whether to take a lump sum or an annuity, and what term to choose such as a benefit for your life only, or a benefit that provides ongoing benefits for your spouse if you should die young.

How to Find a Retirement Planner

To help you make these decisions, consider finding a qualified retirement planner. You’ll need to understand the difference between retirement planning, financial planning and investment advice. Then learn how to choose a qualified financial advisor.

Being Happy in Retirement

In the end, retirement is what you make it out to be. What you want is a happy retirement, not just a retirement of "getting by". Achieving a happy retirement will take some planning and soul searching—and it will be well worth the time.