Retiring can be intimidating! For many, retirement is what they worked their entire lives for. Enjoying your golden years can be a dream come true, but it takes a lot of planning and coordination to maximize your retirement years.
If you’re questioning “when can I retire”, read on. We’ll be approaching retirement, and common variables, from a few different angles below.
What Is Retirement
Retirement is loosely defined. For some, retirement is when they live life 100% on their own terms, and never need to work again to sustain their lifestyle.
Others may consider themselves retired if they can reduce their working hours drastically and work a more relaxed schedule, or dial back their work responsibilities. Many refer to the latter as being semi-retired.
Retirement looks different for everyone but is generally associated with those who are approaching, or who have reached, the age when they can begin to collect social security.
Financial Considerations for Retirement
Before fully understanding when you can retire, you should take various financial and life considerations into the equation. Such conditions include:
Your Cost of Living
A big piece of the financial puzzle is determining how much money you actually need to survive, and live the lifestyle that you want to live. This looks different for everyone.
For example, if you own your home and live mortgage-free, you do not need to worry about a mortgage payment each month. Whereas, if you rent your home or apartment, you’ll need to make sure you have enough money to continue paying for rent throughout your retirement years.
Your mortgage shouldn’t be the only expense you factor into the retirement equation. All debt and expenses should be considered. Paying off debt before retirement may be a great way to keep more cash in your pocket throughout your retirement years.
Your Source of Income
If you plan on retiring and not working, you will still need money to survive and pay for bills and everyday expenses. Will all of your income come from social security, or will you have income from various other assets, such as rental income or dividends?
Ensuring your cash inflows exceed your cash outflows is important. Having numerous sources of income throughout retirement can also be helpful just in case any source has issues; such as tenants not paying rent, or the stock market crashing.
Your Lifestyle and Aspirations
Some people choose to live out their retirement years traveling to foreign countries, our vacationing throughout the United States. These travel plans can be expensive and must be factored into the equation.
On the other hand, others wish to live a conservative lifestyle in retirement, and simply just enjoy their free time. The latter typically requires less money.
Your Health and Wellness
Healthcare costs can be expensive. Perhaps you need an assisted living facility or some type of surgery.
These costs can quickly erode a financial nest egg. It’s impossible to predict what your healthcare needs will be in the future, but leaving some money aside for unexpected healthcare costs is a great way to manage this proactively throughout your retirement years.
Budgeting Is Important
Whether you are retiring with plenty of cash in the bank and other investment accounts, or if you are retiring and living off of your social security income or pension, one thing is likely true; you’re cash inflows will be less in your retirement years than they were during your working years. That is why budgeting can be so important, especially in retirement!
Budgeting is simply financial planning. Start by listing all of your expenses, and the monthly amount to get an understanding of what your total expenses are per month.
Beyond that, list out all of your monthly sources of income, and the corresponding amount for each source, and get your monthly income total. The equation is real simple:
total income – expenses = leftover cash.
Generally speaking, as long as this number is positive, you’re in good shape. However, you must allow room for fluctuations and miscellaneous expenses that come up along the way.
You can manipulate your expenses and figure out ways to reduce costs. For example, you may realize you are spending too much money dining out, and that is putting financial pressure on you each month.
Get Started Early
One of the best ways to ensure you are financially ready for retirement is to get started early. Whether that means opening a 401(k), purchasing rental properties, paying off debt, or reducing your cost of living.
Are You Ready for Retirement?
Figuring out if you are ready for retirement is by no means easy. There are so many nuances, considerations, and variables that all go into this equation.
Some people are never ready for retirement but are forced to take retirement early and live off of an early social security check. Other people have millions of dollars saved up and can live more than comfortably throughout their retirement years.
The best way to determine if you are ready for retirement is to work with an unbiased financial advisor. A financial advisor will take a holistic view of your finances, and will help calculate how financially prepared you are for retirement.
Retiring isn’t entirely based on the amount of money you have saved up either. Your cost of living and your expenses hold significant importance in this equation.