Regular readers know that one of my favorite answers to almost every financial planning question is, “It depends.” That’s because each situation is unique. Your values and priorities may be very different from those of a friend or neighbor, even if you’re the same age and have similar retirement savings.
So, how can you decide if you're ready to retire? First, reflect on your values and priorities. Then, think about what retirement REALLY means for you.
Retirement today is not a one-day event—it’s a process. I think of three distinct decisions, often with three different timelines, that are part of this journey:
- The day you leave the big job
This is when you step away from a demanding, possibly stressful role that has provided for your family. This decision usually leads to more flexibility and less stress—but also a reduction in income. - The day you stop working altogether
This is when you no longer bring in any earned income. No consulting, no part-time work, no side-hustles—you're fully retired from the workforce. - The day you start drawing on retirement income
This is the moment you transition from earning money to withdrawing it from savings to cover expenses. Income could come from a pension (if you're lucky), Social Security, and—ideally—the bulk from your retirement savings.
Let’s say you and your spouse are five years apart in age. You might wonder if one of you can retire now while the other waits. Here are some key factors to consider:
- Who carries the health insurance?
If either of you is under 65, you’ll need to arrange for health insurance until Medicare kicks in. Often, one spouse has coverage through work, which may be worth keeping for now. - How clear are you on cash flow?
A baseline consideration is ensuring you can cover the bills. Do you know how much it costs to live today? Many people don’t. From there, make a realistic projection of how your living expenses might change over the next 20 to 40 years. This can be more challenging than it seems, so seeking expert advice might be helpful.
It’s harder than it sounds and maybe some expert advice would help
experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor in West Saint Paul, Minnesota. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
What retirement income sources can you count on? Will you have a pension? How will you maximize Social Security benefits? How might part-time work fit in? What is a prudent plan for consuming retirement savings.
Where does your retirement savings stand? How much is saved today? How much have you been adding each year? How would savings rate change if one of you stopped saving today? Where is the savings held? How is it invested there? What will the income tax issues be as your distribute money?
How long will you live? Really? Current research shows that about 1 in 10 adults have a realistic idea of how long they are likely to live. Research shows that the average 65-year-old woman has a 40% chance of living to age 90. Men of the same age have a 30% chance. So, it’s more likely that you will live a few years longer than you think.
So, what do you think? Can you retire? Maybe you would benefit from a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor in West Saint Paul, Minnesota to help better understand your options. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.
And yes, I’m still taking on a few great families to be part of my financial planning practice in West Saint Paul, Minnesota and, thanks to Zoom, across the country.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.