Big question! Unfortunately, the answer is a bit more complex than a simple, “oh, you’ll know.” Making the decision to retire really comes down to having the confidence that your financial resources will last well beyond your expected lifespan.
Determining the right time to retire involves answering some important questions. First, ask yourself:
- Do you have the financial resources to pay all of your expected bills through retirement, and have money left for enjoyment?
- Do you, or your dependent(s), have any health issues?
- Do you have affordable healthcare for retirement?
- How long do you, and your dependent(s), expect to live?
What’s more, it’s difficult to answer these questions with any certainty – they are by nature, uncertain. However, as time passes, you will be able to better predict the answers. ln your 60’s, you will probably have a better picture of your current health and financial situation which will help you paint a more realistic idea of your retirement lifestyle.
Here are some more things to consider to help determine potential expenses for the future:
- Do you have any major health issues? Are you on regular prescriptions? Do you anticipate needing surgery or other medical assistance?
- Will your mortgage be paid off? Do you plan on downsizing?
- Will you relocate? How far? Are you paying a moving company? Are you planning to rent or buy? What is the housing market?
- Are you able to, and do you plan to, travel often? How frequent is often?
- Are your children able to support themselves?
With these questions in mind, start by creating a realistic “post-retirement” budget. Foresters’ Everyday Money financial counselors can help you with this. Include your necessary living expenses (food, clothing, and shelter) and discretionary expenses (travel, entertainment, donations, dining out, etc.).
If someone else will be dependent on you, make sure to include their expenses in your budget too. A budget will change as your income, needs, and desires change; however, this will give you a clearer picture of how much money you will need annually during retirement.
Now that you know your expected expenses, you can begin calculating your current retirement savings balance.
- What is your anticipated income from government programs?
- Do you have any other guaranteed income sources?
- How much is saved in your retirement savings accounts?
Lastly, estimate how long your retirement savings will last you based on your expected expenses. When you factor in inflation, will your savings last beyond your life expectancy?
If so, it may be the right time to retire. Making the decision to retire also requires considering your personal risk tolerance too. What happens if something changes, and you need more money? Are you willing and able to go back to work? Is there someone else that is able to support you financially? If you have a low risk tolerance, you may want to work a few more years to help alleviate these concerns.
Disclaimer: This article provides general information and may not be applicable to you. Please consult a retirement planning professional to discuss your personal circumstances. Foresters Financial and its representatives do not offer tax, legal or estate planning services.
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