How to Know Whether You’re Really Ready to Retire
As you’re painstakingly crossing out calendar days at work, you’re pretty positive you’re ready to retire — mentally at least. But knowing when to give in to temptation depends on how responsibly you approach retirement. It can be easy to lose sight of certain retirement responsibilities. Retire too soon, and you could be in for a rough next 20 years. Retire too late, and you’ve wasted thousands of dollars and hours that could’ve been spent elsewhere.
Just 18% of Americans feel very confident about their retirement finances, according to the Employee Benefit Research Institute. But after years of careful saving, we would hope we’d feel secure about the future beyond work.
When you finally take the plunge, you must be sure you’re ready for this new stage of life. Being ready for retirement is not always about money, though it is usually the most influential factor. Retirement brings a lifestyle change that challenges both your financial stability and your most meaningful relationships. So how can you prove you’re ready to make the transition? Here are a few signs that suggest you’re well on your way to leisure.
1. Your kids are self-sufficient
Almost 40% of young adults lived with their parents or other relatives in 2015. If you’re one of the lucky American families with a child who has permanently flown the coup, you might be well on your way to a responsible retirement.
Boomerang kids, or those who return to live at home after college, can ruin your chances of retirement because parents are likely to financially support them. Before any retirement plans are made, make sure you are an official empty nester and your kids are self-sufficient. This ensures you can focus on your own needs during this time of transition.
Next: It’s not just your children to account for in retirement. It’s everyone else.
2. Your family and friends are stable
Just like you hope your kids are self-sufficient, you must take stock of other personal relationships that could throw a wrench in your retirement dreams. Unfortunately, it’s not just your own actions that affect your retirement. Everyone around you can influence your overall well-being, including your parents, relationships with your friends, and the relationship with your spouse.
Step back, and consider your circle. Elderly parents might require additional care as they age, and your friends might want to live lavishly. If you already envision potential road blocks down the line that could impact your ability to maintain a responsible lifestyle, you might want to wait to retire. Are mother-in-law suites or impending wedding celebrations for your children on the horizon? And could you swing them if they were?
Next: Debt? What debt?
3. You’ve paid off outstanding debt
If you’re saddled with debilitating credit card debt, you’re not ready to retire. Major money pits, such as car loans and other large expenses, can severely hinder your retirement plans and eventually snowball into bigger issues should you fall behind on payments with a fixed income. If you still owe a significant amount on your mortgage or other long-term debts, paying them down should be your first priority. It’s unwise to forgo a yearly salary with benefits while you’ve still got some more to go on your mortgage and a fancy new car with a high-interest payment plan.
Next: Let’s talk about net worth.
4. Your net worth outweighs liability
Early retirement is in reach for those who are able to realistically measure their financial situation with a practical eye. Retirement is for you when you can truly afford to stop working. If your liabilities outweigh what is in your bank account, you’re not ready.
Sam Dogen, of personal finance website Financial Samurai, explained the concept to CNBC. “Net worth is the best measure of how close you are to early retirement. Net worth is simply your assets minus your liabilities. Your assets include things like the money you have in your bank accounts, the value of your investments, and your home. Your liabilities are what you owe, which includes your mortgage, student loans, and credit-card debt.”
Next: Keep your friends closer.
5. You’re committed to staying socially connected
People don’t often think about the social aspects of retirement and how emotional health can impact your quality of life during this time. For instance, a working person will have thousands of high-quality interactions, or face-to-face discussions, with others every day. But in retirement, those numbers decrease drastically to lower-quality interactions, such as phone calls and email communications.
It can be easy to fall into a routine that’s lonely and repetitive when trying to live frugally during retirement. The Harvard Study of Adult Development tracked the lives of hundreds of men for over 75 years to see how life experiences affect health and aging over time. The study found people who are more socially connected to family, friends, and their community are happier, healthier, and live longer than people who are less connected.
Not only do we need to take care of our bodies to stay healthy, but we must maintain close relationships with others, as well. Those who have plans to stay socially and physically active will feel less isolated and happier moving forward. Examples of this could be committing to volunteer work or weekly outings with friends that will help spark social interactions.
Next: Are you prepared to go back to work?
6. You’re open to part-time work
Emotional and physical health are equally important in retirement. Take stock of your current career trajectory. Is it still bringing you joy? Does it still provide you with a purpose? If so, you might be able to withstand a few more years in the workforce. If not, you’re probably on the verge of retirement. A life without deadlines and dress suits seems appealing to those currently drowning in paperwork, but hopeful retirees shouldn’t write off future work completely.
Such a stubborn stance to avoid all employment like the plague will be harmful if you run into hard financial times later on. Be prepared, or willing, to go back to part-time work if needed. Aside from the obvious financial benefits, it will keep you from getting bored and stagnant in your later years.
Next: You know what to expect month to month.
7. You’ve created a monthly financial plan
You might be ready to retire if you’ve identified the exact amount of income you’ll need during retirement. Make a detailed list of monthly and annual expenses — including food, transportation, entertainment, health care, and emergency funds — you’ll carry through to retirement. Impromptu retirement can be a serious buzz kill if you’re still blissfully unaware how much cash is needed to support your interests each month. If you’ve already totaled your individual retirement costs, then you can start planning how a fixed income will work with your expenses.
Next: Confirm it.
8. You’ve confirmed you can actually afford retirement
Once you’ve organized your various expenses and monthly spending habits, you should examine whether your available retirement resources will support your lifestyle. Can you live on your retirement budget? Test your budget for a few months, and see what happens. If you’ve practiced living on said budget and the lights still stayed on in the home, retirement is in your near future.
But if you felt a bit strapped, you must determine whether you could generate the income you need. If you plan to rely on Social Security alone, that’ll be a tough hill to climb. The average Social Security payment hovers around $1,300 per month, which is unlikely to fund more than half of your needs. But if you’re equipped with various forms of income, such as pensions and other retirement savings, you are liable to retire soon.
Next: What does your future look like?
9. You’ve identified big life changes
In addition to accounting for daily spending habits in your budget, you’ll also need to think about whether you’ll make any major lifestyle changes during retirement, such as downsizing to a smaller house, moving closer to the grand kids, or taking that international trip to France you’ve been dreaming about for years. Such choices will have a direct effect on the amount of income needed to fund your retirement. What does your retirement lifestyle look like 10 years from now? Do your savings outweigh those future retirement goals? If so, put in your notice today.
10. You’ve considered inflation
Even if you have thousands of dollars saved for retirement, that money won’t go as far as it would today 20 years from now, thanks to inflation. Life expectancy is getting longer, and your retirement funds could fall short once you get deep into your latter years. Keep track of your finances early on, and crunch the numbers. If you determine your savings won’t become an added source of stress, then you could be on the brink of retirement.
Next: You’re prepared to start basketweaving.
11. You’ve got a hobby
You must give some thought to how you’re going to spend your latter years. Those who retire without planning for hobbies, interests, and activities will quickly find themselves bored and lonely. Having a defined hobby will decrease the likelihood that you spend your days shopping and brunching with the usual crew, which can lead to a slippery slope of financial irresponsibility. If you’ve already planned how to satisfy your time now, then it’s one fewer hurdle to jump in the future.
Next: Health care costs don’t scare you.
12. You can handle health care
Health care is one of the biggest expenses in retirement — one that often trips up unruly savers. You are not ready to retire until you determine whether you can afford and will have access to a health care plan. Will you be receiving Medicare after age 65? Can you afford the accompanying out-of-pocket expenses on your new, lower monthly income? If impending prescription copays and deductibles are considered manageable expenses, then you’re way ahead of the retirement game.
Next: Hit “unsubscribe” and “cancel.”
13. You’ve trimmed the fat
And we mean more than just the belly fat. Part of preparing for retirement is making sure you’re cutting back and downsizing where you can to make monthly expenses more manageable. Once monthly and reoccurring bills become less cumbersome, it’s easier to fund the type of lifestyle you crave in retirement. Get rid of unnecessary monthly fees by re-evaluating your automatic bill payments. Are you still using the Netflix account, the Spotify membership, and the Amazon Prime account? By taking stock of these fees, you can tighten your retirement budget and live more comfortably.
Next: You’ve taken your employer for all it’s worth.
14. You’ve squeezed every last drop from your employer
By the time you start seriously considering retirement, you’re probably enjoying your peak earnings in a relatively secure job. Many employers offer competitive retirement contribution plans to their employees. Have you taken full advantage of this perk? If you’re not contributing enough cash to earn a contribution match, you’re tossing away free money. However, if you’ve successfully maxed out your contributions in the past few years, then we salute you. And you’re probably well on your way to living a life of leisure.
Next: Your marriage is intact.
15. You’ve put some effort into your marriage
They often say the first year of marriage is the hardest. And that might be true. But we’d also argue the later years can wreak havoc on a marriage if not nurtured and maintained properly with effort.
Retirement carries with it a massive lifestyle change, including two people in the home at one time, crowding each other’s alone time and fiddling with the same household work to stay busy. Once you and your spouse have an honest conversation about how you’ll manage future troubles in paradise, you’ll be more prepared for retirement. If not, you run risk of divorce, which could force you to forgo some of your personal retirement savings in the divorce settlement.
Follow Lauren on Twitter @la_hamer.