Retirement is one of the biggest financial decision that you’ll make in your life. In fact, it’s one of the biggest decisions you’ll make period! That makes it important to understand what signs to look for when determining whether you’re ready to retire.
In this post, we’ll highlight 3 of the most important signs to watch out for that are good indicators that you can leave the working world behind you. Remember: nothing is set in stone, and everyone’s personal and financial situations are unique. However, these three rules of thumb can help guide your decisions so you can have a prosperous, relaxing, and enjoyable retirement.
Let’s take a look.
Your savings will last for your entire retirement
The first and most important metric to assess when planning your retirement is whether you’ve saved up enough money. A good rule of thumb many financial advisors recommend is that you should have as much as $1 or $2 million in your retirement accounts and savings by the time you leave your career behind you.
However, depending on your specific circumstances, it doesn’t necessarily have to be that much. For instance, you might live in a town or state with a lower cost of living, making it easier to make ends meet on a smaller budget. You might also simply have a more inexpensive standard of living, or you might choose to sell off a large asset, like your home, and downsize to add funds to your portfolio while keeping costs low.
- The takeaway: It’s smart to plan to have about 20 years’ worth of monthly withdrawals saved up before relying solely on your retirement savings. Remember that you will still continue to accrue interest even after you start withdrawing, which will help to keep your savings healthy.
If you don’t think you’ll have the funds saved to retire by the time you’d like to, remember that there are other options. Reverse mortgage, encore careers, and public benefits can all help supplement retirement savings.
You have no or low debts and liabilities
On the flipside of your financial coin, debts are also an important metric that can help you determine whether it’s time to retire. For most workers, it’s likely that you’ll have a lower monthly disposable income in retirement than you did during your career. That’s not necessarily a bad thing; it’s just part of the retirement process.
However, that does mean that you’ll have less money available to pay down your debts. If, for instance, your monthly debt payments are difficult to meet even while you are employed full-time, it will likely be even more difficult once you’ve left your job behind.
Here are a few examples of debt payments to think about as you plan your retirement:
- Medical debt
- Student loans
- Credit card debt
- Mortgage payments
- Auto loans
If you’re struggling with paying off a lot of debt – most Americans carry some amount of credit card debt these days – it might be smart to consolidate debts under a new personal loan. Likely, your rate will be lower than the rates you’re currently paying, and the streamlined experience can make it easier to get a handle on your finances before retiring.
You’ve made a financial plan and are feeling confident
The last step in getting financially ready to retire is making a financial plan. This means sitting down with a paper and pen – or your favorite spreadsheet software – and putting together a list of the expenses you’re likely to face during your retirement as well as the full list of income sources you’ll enjoy.
Making a financial plan can help you build your retirement budget in a wise way. You’ll know what sorts of expenses – from assisted living expenses and medical treatments to hobbies and vacation – you can comfortably afford each month, and you’ll feel better prepared to leave your career with confidence.
- Note: When building your financial plan, be sure to factor monthly debt payments (as noted above) into the monthly expenses that you’ll face in retirement.
Retirement planning can appear difficult and intimidating, but once you dive into the details and start making a plan, you’ll likely see that things come together more easily than you’d expected.