When You Retire Really Matters

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Retirement ageAs baby boomers start hitting age 65, putting off retirement for a few years has become all the rage. But even if you're pessimistic about your financial prospects, you may not need to wait as long as you might think to retire securely.

Americans' opinions are quite negative about their retirement prospects. A survey from Wells Fargo (WFC) found that a quarter of the people it surveyed believed they'd need to work until they're 80 to be financially comfortable. Three-quarters expect to work during their retirement years, and while some of those are people who simply want to keep working, the majority say they'll need to do so to cover necessary expenses or to keep up their standard of living.

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Yet a new study from the Center for Retirement Research paints a more positive picture for prospective retirees. The news wasn't all good, as the study found that fewer than half will be able to retire at 65.

Workers should take heart, though, because for many of those who can't afford to retire at 65, just a few more years of work will make a huge difference. The study noted that by age 70, 86% of households should be financially prepared.

What's the Difference?

Putting in a few extra years on the job has a number of positive impacts on your finances. Consider:
  • An extra year of paychecks covers living expenses for that year, keeping you from having to tap your nest egg.
  • Working longer also lets you put more of your earnings aside, boosting your savings even further.
  • If your employer provides health insurance, it can save you a bundle versus paying your own premiums. Other employee benefits can also help.
  • An extra year of work between ages 62 and 70 lets you defer Social Security benefits, increasing your eventual monthly check by about 8% per year when you finally take it.

Even with these positives, there are still some big reasons to worry. When you hit your 60s, Social Security may no longer provide the same level of benefits that current law gives retirees. Moreover, even if you want to work, you may not be able to find a job that gives you everything you need.

Nevertheless, for those who do have control of their careers, the decision of when to retire really makes a big difference. The right choice can give you a lot more confidence about your financial future.

For more on making the most of your retirement:
The 10 Worst States for Retirees in 2012
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When You Retire Really Matters

High property taxes and a high foreclosure rate weigh heavily on Wisconsin. On the other hand, Social Security income is exempt from its income taxes (which are also high).

Ninth place was virtual tie, but Maine offers lower property taxes than the No. 8 state. It does, however, have higher income taxes. The governor has said he wants to make retirement income tax-exempt in Maine, but it hasn't happened yet.

New York wins (or, rather, loses) the toss-up with Maine because of its median property taxes -- the fourth highest in the nation -- and general tax burden. Generous exemptions for Social Security and pensions, as well as a high standard deduction, count in the Empire State's favor. Cost of living, of course, and the bitter winters are heavy strikes against New York -- unless you're rich, or a member of the Polar Bear Club.

With no income tax exemptions for pensions or Social Security, Minnesota puts a heavy tax burden on retirees -- the nation's fourth highest levy, according to TopRetirements's calculations.

The blight in the Garden State: taxes. New Jersey levies the nation's highest median property tax ($6579), and has the highest income tax burden as well, according to the Tax Foundation. On top of that, it's facing a big budget deficit, and features a lofty cost of living. But most pension and Social Security income is tax-exempt for couples making less than $100,000.

The Bay State is often called "Taxachusetts," and with good reason: Property taxes are among the nation's highest, and the flat rate applied to earnings beside Social Security, which is exempt (like government pensions, but not private ones), can prove costly indeed.

The Green Mountain State may be scenic, but it harbors high median property and income taxes, and its cost of living is in the top 10. Winters are described locally as "too cold to snow."

Rhode Island's scenic too, but is facing choppy economic waters, with underfunded pension and health care liabilities, as well as budget deficits. This despite the fact that the Ocean State has the fifth highest median property taxes paid.

The Prairie State is in dire fiscal straits, with terrible figures for pension funding, deficit spending, unemployment and foreclosures. The official response out of the capital in Springfield? An increase in income taxes. Most pension and Social Security income is not taxed in Illinois, but the state's 5% flat tax eats into other earnings, such as investment income.

Locked in a dead heat overall with No. 2 Illinois, Connecticut won its spot at the top of the list because of higher property and income taxes, as well as a greater cost of living.


Motley Fool contributor Dan Caplinger has no idea when he'll decide to retire. He owns no shares of the companies mentioned above. You can follow him on Twitter here. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo.

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