Retirement is a significant milestone in life that often brings a mix of emotions. Financial planning, practical considerations, and emotional preparedness are crucial aspects of being ready to retire, but because retirement can come at different times for different people, sometimes it’s hard to tell whether or not you’re ready.
One thing is true: retirement is a major life transition into an exciting new chapter in your life. Understanding the signs that you’re ready to retire can help ensure a smoother transition and a more fulfilling experience — at Dunnigan Financial, we are proud to have helped folks of all ages navigate retirement successfully, and we would be happy to support you too. But to get you started, here are seven signs to look out for that indicate you might be ready to retire.
You’re Debt-Free
Debt is a troublesome but in no way insurmountable obstacle for retirement. If you still owe a fair amount of money from home, education, or auto debt, it is worth considering postponing retirement until you can lower it to a more manageable amount or pay it off completely. When you’re on a fixed income from social security and pensions, remaining debt can make it difficult to navigate unexpected expenses. At the very least, aim to pay off all high-interest debt such as credit card debt.
A potential way to overcome the difficulties of debt is to consolidate the debt into one loan, making it more streamlined and straightforward to pay off. If, however, you are debt-free, this is a good indication that you may be ready for retirement!
You Have a Diverse and Updated Portfolio to Protect Your Wealth
If you’re planning to live off of savings and investments once you retire, it’s wise to be aware that this will primarily depend on the size of the savings and investments, the expected growth rate of these savings and investments, and the annual amount you intend to withdraw. If you haven’t had a detailed look at your investment portfolio in a while, doing so before you decide to retire will help you make a well-calculated choice on your retirement timing.
And while you do so, consider updating the portfolio to make it more diversified — when it comes to creating sources of income for retirement, you can mitigate risk by spreading your savings and investments across multiple streams of income. Furthermore, as you near retirement, it’s worth shifting your investment strategy to be more conservative in order to protect that retirement wealth.
If you have updated and diversified your portfolio and analyzed it according to the size, growth rate, and withdrawal rate, and retirement still appears viable, then this could be a good sign that the time has come.
You Have a Fund For Unforeseen Expenses
Unforeseen expenses are a normal part of life. Unfortunately, we cannot plan for everything, but by creating a fund that is purposely constructed to support you in case unforeseen expenses arise, your transition into retirement can be far more stress-free.
The problem that many people run into is that much of their retirement savings and investments are not as liquid as they would hope. When unforeseen circumstances arise, the last thing you want to do is withdraw high-performing investments and assets in order to get some cash. Therefore, consider having an emergency fund in addition to your other future income streams; if you have one in place already, this could be a good sign you are ready for retirement.
You Have a Retirement Budget to Match the Lifestyle You Want
As we mentioned previously, it’s wise to factor in the size of your savings, investments, and income streams, how much these will grow, and what exactly you plan to take out every year in order to live comfortably. That last factor, your retirement budget, is critical to nail down in advance of retirement to ensure that your lifestyle plans are sustainable.
If you carefully calculate this budget (with reasonable and not overly conservative estimates) and it balances well according to your income streams and their relative growth rates, then you are likely ready to retire.
You Have Factored in All Potential Income Sources
A significant part of the retirement calculation is the location and size of all potential income sources. Don’t forget to factor in all your investments and any sources of guaranteed income such as social security. It’s worth noting that if you wait to draw from social security until you reach the full retirement age, you will be able to receive much higher payments than if you were to start receiving them, say, 8 years sooner.
We understand how the desire to retire can come on quickly and strongly, but by working just a couple of years longer, you can significantly increase post-retirement income streams.
You Have Planned for Healthcare Needs
Healthcare costs can rise significantly, perhaps even exponentially, once you enter retirement. Most individuals receive some form of health insurance through their employers, but this can terminate once you retire. In your calculations for future income and expenditures, be sure to factor in increased healthcare costs. If you do so, and you are satisfied with your ability to comfortably receive health care during retirement, this is a great sign that you’re ready to retire.
You Have Considered Your Family
Unless you live alone, retirement can affect more than just yourself. Don’t forget to factor in your spouse and any remaining dependents such as children still living at home or parents who need extra care. If you still have individuals in your life who are financially dependent on you, the time may not be right for you to retire as their costs will significantly affect your ability to live comfortably and stress-free (financially) in retirement.
Retirement is also a really big life transition, so it is well worth making sure that your family, such as your spouse, is financially and emotionally ready for this next step.
Get Professional Retirement Guidance
Everyone wants a seamless and stress-free transition into the golden years of their life. Unfortunately, retiring too early can lead to financial uncertainty and perhaps even a re-entry into the workforce if not properly prepared. These seven signs are indications that you might be ready for retirement, but it takes looking carefully at the whole picture of your life in order to be sure. If you think you may be nearing retirement and need some extra guidance, contact the financial advisors at Dunnigan Financial today.