How do you know it’s time to retire? While most of us enter into retirement at some point in our lives, the timing is different for everyone. It’s a personal decision based on your unique situation, and it can involve many complex factors. The age might be the biggest factor for you, or maybe it comes down to saving a certain amount, waiting until your youngest child moves out, or something else.
If you’re beginning to think about your retirement timeline, here are seven things to consider:
#1: Your Finances
This is probably the consideration you’ve thought most about since retirement means that you’ll no longer have a traditional paycheck. Instead, your portfolio takes over and you’ll have to look to your savings and investments to support your lifestyle throughout retirement. Because of this, you’ll want to make sure that you have enough money to take care of yourself before you leave the workforce. This amount will look different for everyone, as it depends on your lifestyle, whether you have other forms of income that will be helping to support you – such as a spouse or inheritance – and other factors. A good rule of thumb is to build a retirement savings that is at least 25 times larger than what you expect your annual withdrawal amount to be.
If you’re feeling unsure about whether you’ve saved enough, sit down and budget out how much you expect to spend in retirement each year. Having concrete numbers will help instill confidence that you’re saving enough for retirement. Should you find your savings lacking, it may be wise to work a few additional years, even if part-time, so you can increase your savings.
#2: Your Spouse
It may not seem like it, but the timing of when you and your spouse retire in relation to one another can have a big impact on how retirement looks for the both of you. It’s smart to work with each other and determine a retirement timeline and plan that is cohesive and complementary, rather than simply retiring when you both feel like it. If one partner is ready to retire and travel, for instance, but the other isn’t ready to give up their career yet, that can create tension and resentment. Or, if one spouse wishes to stay close to the kids and grandchildren but the other wants to move to a tropical location, you may find yourselves at a crossroads come retirement.
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Guard against these types of challenges by sitting down and ensuring that you’re both on the same page when it comes to retirement. Discuss what your vision, dreams, and goals are for this phase of your life. Determine how much money you’ll need to support those goals, and where you are on your savings journey. Planning together and maintaining open and respectful communication will help you work through any differences early on so you can enter retirement as a team.
#3: Your Bucket List
Building off the last two considerations, you may want to think about any bucket list items – big or small – that you have for your retirement. It’s important to know the answer to these three questions when you’re determining whether or not you’re ready to retire:
- What do I want to do with my time in retirement?
- Where do I want to spend my time in retirement?
- Who do I want to spend my time within retirement?
Getting clarity on these questions will help you begin to color in the lines of what your retirement will look like, which will help you determine whether you have enough saved to meet your financial needs. If you’re still unsure about what you want your retirement to look like and are looking to retire simply because you want to quit your job, perhaps consider finding a job that’s more in line with your passions and bide your time until you have a clearer idea of what you want. Waiting until you have a meaningful and clear plan in place for your retirement will help you avoid any regrets about your timing.
#4: The State of the Markets
It’s no secret that the markets can be volatile and unpredictable on the best of days. But since so much of the income that retirees depend on comes from their investments, it would be foolish not to consider the state of the markets when thinking about the best time to retire. For example, if you retire on the cusp of a bull market, then your portfolio will most likely build enough padding to protect you from any future downturns. On the flip side of that, if you retire and begin taking withdrawals from your savings at the beginning of a bear market, you run the risk of significantly increasing your chances of running out of money.
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While experts refer to this as sequence risk, a lot of it comes down to luck. It’s impossible to determine what the market is going to do on any given day, so you’re going to have to depend on context when considering your timing. If the economy seems to be poised for a downturn – due to a global pandemic for instance – then you may want to delay retiring until things calm down.
#5: Your Social Security
For many retirees, Social Security benefits make up a significant portion of the income that they depend on in retirement. Since the age you retire influences how much you receive in Social Security benefits, it’s a smart move to plan wisely for when you should retire and begin claiming your Social Security benefits. Taking your benefits at your earliest eligibility reduces the amount of your monthly benefit while waiting until your full retirement age (FRA) to take your benefits increases your monthly payment.
#6: Your Health
We all hope to be blessed with long and healthy life, but many people enter retirement with health conditions. This is why your health status will play a big role in what your retirement plan should look like. If you’re in good health and have a family history of longevity, then spending more time in the workforce will most likely make little difference in your overall retirement experience. However, if you or your spouse have health issues – especially demanding ones – you may want to think about retiring earlier so you have more time to do the things on your bucket list while you are able. This is particularly relevant if you’re dreaming of active and adventure-filled retirement.
It can be incredibly uncomfortable to consider our own mortality, and yet it’s something we must all come to terms with at some point in our lives. Take an honest look at your health, your family’s health history, and average life expectancies, and take these factors into consideration when deciding when to retire.
#7: Your Health Care Benefits
The cost of health care in the United States continues to rise, and it is one of the biggest stressors retirees experience today. Fidelity recently reported that they estimate a 65-year-old couple that retires today should expect to spend upwards of $300,000 to cover health care expenses in retirement. That’s a significant amount of money and it can pose a threat to even the best-laid retirement plans. When considering whether or not now is the right time to retire, be sure that you have a plan in place to cover these costs – whether that’s to purchase long-term care insurance, Medicare, an HSA, or some other avenue. Otherwise, you run the risk of medical expenses quickly depleting your nest egg.
Finding The Right Time for You
Determining the right time to retire is a complex decision that requires you to consider various interdependent factors. Being able to step back and see the full picture of your retirement timeline and how all of these factors may impact your retirement can be incredibly difficult and overwhelming. Having a trusted professional in your corner can help ensure that you’re considering all the necessary factors and making the most of all the resources available to you.
At Flourish Wealth Management, our team is committed to empowering our clients with the knowledge to accomplish the goals they have for their future. We offer comprehensive wealth management services that can provide you with tailored solutions to fit your unique situation and needs. If you’d like to begin a conversation about your retirement plans, please contact us today.
