Retirement can be an exciting but scary time. It is often difficult to know if you are ready to retire, but the sooner you start thinking about it, the easier it is to make adjustments if needed. Here are some of the things that you should be thinking about when making this decision.
The first thing to think about is if you can afford to retire. The easiest place to start is with your fixed income that you’ll have in retirement. For most people, this would be a pension from their job and/or social security. Some people may want to retire before they can/should start drawing social security, so make sure you have the funds to close that gap if needed. Maximising your social security is an entirely different topic that we’ll cover in future articles.
Once you know how much you’ll automatically receive from these sources every month, you have to decide what amount you need/want in retirement. You’ll want to think about what kind of lifestyle you’ll want to live. Will you travel? Will you want to live near the ocean? What activities do you want to fill your days with? Once you know how you’d like to live, find out what amount of money it would take to make it happen. Some big things to consider are housing costs (if a home isn’t paid off yet) and health care costs (especially before age 65, when you’d be eligible for Medicare).
Now that you know how much you need and how much fixed income you’ll have, what will it take to fill that discrepancy? If your fixed income already covers all your retirement expenses, you are in great shape. If not, how much income per month do you need from other sources? The most common way people fill this monthly gap is through their retirement savings or investments. This could be their 401(k), TSP, IRA, or any other savings vehicle. Now the question is, can you make enough money from these investments to bridge your monthly pitfall? If yes, great! If not, how much longer would you have to work to save the appropriate amount of money?
Now, I am fully aware that I am not even addressing some huge variables such as inflation, taxes in retirement, and how you are investing your savings. These are things that you definitely want to consider but in efforts to not make this article a mile long, I am simplifying things as much as possible.
After you’ve run your retirement numbers, the next question is do you really want to stop working? I have seen many people retire, travel for a year, get bored, and then go back to work. Some people get bored with the stereotypical retired lifestyle and fill their time with a new hobby, working part time, or playing a sport. How do you really want to spend your time? There is nothing wrong with continuing to work or just or reading books all day in your recliner. It comes down to what fulfills you and what you’d like to fill your days with.
At this point, I am sure you are thinking, “Wow, this is a lot of work and things to think about when it comes to retirement”. And you’d be right. It does require work and planning. But if you put in the effort now, you can enjoy an incredibly happy and comfortable retirement. Especially now as life expectancies continue to lengthen, retirement is becoming an even larger percentage of people’s lives. You can reap the benefits of an incredible retirement tomorrow by putting in the effort and planning today.