If you're 60 and you've saved at least four times your salary, then Christine Fahlund, senior financial planner at T. Rowe Price, suggests that you continue to work but stop saving, and then use the money you would have saved to buy the boat or take the trip you want.
The trick is to avoid taking Social Security, which will increase in value 8 percent per year between ages 62 and 70, and let the power of investments increase your nest egg without anymore help from you. T. Rowe Price calculates that giving your nest egg time to grow without touching it while you continue to live on earned income alone until you are at least 66 will improve your financial situation significantly compared to retiring at 62. If you can wait until 70 -- even if you haven't saved another dime since you turned 62 -- you'll still be sitting pretty.
Fahlund provides these caveats:
- Leave at least 50 percent of your nest egg in equities. In this environment, that's the only way you'll make a reasonable return. If you can't figure out how to earn 7 percent annually on your money (or you can't stomach doing what it takes), you might have to rethink this approach.
- Having multiple streams of income enhances this strategy. If you know you'll get a pension at 65, you're ahead of the game.
- If your employer offers a generous 401(k) match, it is probably a good idea to continue to save enough to get that match. "Don't leave money on the table," Fahlund says.
- Having the house paid off -- or nearly so -- is another thing that makes this game plan work better.
- Cut back on work slowly. If the higher-earning half of a couple can delay taking Social Security until age 70, not only will that person get about double what he or she would have at 62, but also Social Security is indexed for inflation, so the increased payment provides longevity insurance.
"There is a lot of value in enjoying life while you can," Fahlund says. "So many investors are despairing that they are going to have to hunker down and forget about enjoying their 60s. We say turn that into a glass that is half full with numbers that work."