Are you ready to retire?
The median retirement age in the U.S. is 62 years old. A 62 year old is predicted to live another 20-23 years. If they make it to 84 years old, they are likely to live another 6-7 years. Longevity is hard to predict, so it is important to give yourself a healthy financial buffer when it comes to retirement planning. The following are a few signs you may be ready to retire:
If you are comfortable paying your bills now. Retirees are estimated, on average, to need about 75-80 percent of their pre-retirement income to enjoy a comfortable retirement. Expenses like business clothing and transportation may decrease, but medical bills may increase. It is also important to factor in taxes and healthcare costs into your retirement plan, as those can siphon away a seemingly robust retirement savings account.
If you have low to no debt. Before you retire, you will want to reduce or eliminate credit card debt or car loans. Getting rid of debt means getting rid of the adjoining interest payments that can eat away at savings.
If you have savings set aside for major expenses. House repairs, such as replacing a roof or repaving a driveway, or purchases such as a new car or a vacation home can be difficult to handle during retirement when no new income is coming in and you are working to live on a steady allowance. Before you retire, make sure to address any major, foreseeable expenses and have a plan.
If you are aware of the Social Security benefits. Retiring at a later age can result in larger Social Security payments. Many people choose to delay retirement in order to receive the maximum monthly benefit. If you retire at age 62 (the aforementioned median age of retirement), your monthly checks will be 30% smaller than if you wait until the full retirement age (generally age 67). Your monthly payment could be another 30% higher yet if you wait until age 70. Social Security benefits are essentially a form of “longevity insurance”.
If you have a monthly plan. After you retire, the paychecks stop but the bills keep coming. You will need to factor in the taxes when withdrawing from various retirement accounts and create a financial plan that will offer a sustainable rate of withdrawal. You should track a couple years of spending history and determine how each category may change in retirement, then adjust as needed.
If you have factored in inflation. An inflation rate of 3 percent, which is close to historical norms, means your money will lose one-half its purchasing power in slightly less than 25 years. Inflation is an incredibly important concept to factor in as otherwise you may outlive your money in retirement. A financial advisor can help you plan how to invest your money so to minimize the effect of inflation.
If your portfolio is balanced and properly diversified. As you enter retirement, it is a good idea to annually review how you have your assets allocated. The accepted wisdom for retirees in managing their portfolio includes diversification, preserving capital, earning passive income, and assessing your risk tolerance for growth investments. A financial advisor can help here again if you need it.
If you welcome the idea of retirement. Some people may have their portfolio in a great place, but may not be mentally prepared to retire. Working provides structure, and some people are anxious or bored at the thought of months and years of unstructured time. Others find personal fulfillment, rewarding relationships, and purpose in their work. If this is you, you will want to consider pursuing a “second act” -- a second career, working part-time, or volunteering for an organization you are passionate about.
Finally, if you love your job, you may decide that retirement isn’t for you. Continuing to work can provide a steady income to pursue passions, help financially to cover bigger health problems and larger home repairs, allow for more years of savings and fewer years of drawdowns, or provide higher income to help avoid marital discord in retirement. Warren Buffet is almost 90 and has no intention of leaving it. If going to work excites you, then keep doing it!
If you need help with retirement planning, please call us at 515-557-1860 or email us at email@example.com. We are a fee only fiduciary advisor located in Des Moines, IA serving clients across the U.S.