When Should You Retire?

How do you decide when it’s the right time for you to retire? This is a common question we get at Align Wealth Partners, as is “Will I outlive my retirement savings?” 

There is no simple answer, unfortunately, and the decision process will be different for everyone, depending on factors like age, emotional readiness, retirement savings and lifestyle plans.

The first two things you’ll need to consider, of course, are whether you feel ready to leave the workforce, and whether you’ve saved enough to comfortably afford the type of lifestyle you plan to have during retirement.

If the answer to either of those questions is “no,” then it is probably not a good time for you to consider retirement. If you don’t want to retire, don’t! If you can’t afford to retire, you also may not want to. 

If, on the other hand, you do feel like you’re ready to hang up your work boots and you believe your savings are sufficient to support your retirement plans, there are a few things you should think about before making the official decision.

If you haven’t already, talk with a financial advisor about your plans. Remember, retirement planning in Baton Rouge, for instance, is different than in other areas, so talking with an advisor who is well-established in the area in which you live can be a huge benefit, shedding light on local benefits and costs of living you may not have considered. 

You’ll also want to ask yourself the following questions. 

Before deciding to leave the work world, contact Align Wealth Partners to see if now is the right time. 

How will I spend my time in retirement? 

Some experts suggest that being emotionally prepared to retire is as important as being financially prepared, and that you really shouldn’t even consider retirement unless you’re totally ready on both fronts.

Being emotionally ready to retire means more than just wanting to stop going to work every day. Retirement is an enormous life change; a huge transition to your schedule, your routine, your life. Many people struggle to find their identity away from their jobs, and some experience such difficulty adjusting to post-working years that they get bored, anxious and restless and may even begin to suffer from depression.

To avoid these feelings, and to stave off any potential future regrets about the decision to retire, ask yourself how you’ll spend time in retirement, and be prepared to come up with ideas for filling your days for years or even decades.  

• What do you love doing? 
• What hobbies and interests would you like to pursue? 
• What type of lifestyle are you hoping to have during retirement? 

You may even call on the same process that helped you determine your career path: Use aptitude tools to help you parse out a framework for your retirement activities.  

It’s also important to consider who you will spend your time with. Are your family members close? Will they be busy still working? Make a plan before you find yourself with a lot of extra time. 

Will I outlive my retirement savings? 

Much like deciding whether you’re emotionally ready to retire, deciding whether you’re in a financial position to retire can be a complex, nuanced process. 

To simplify, ask a trusted financial advisor to run the numbers: Estimate your total annual spending, including living expenses, healthcare-related costs, home repairs, outstanding loan payments, and so on. Next, add up your assets and potential sources of retirement income. In short, if your annual expenses are close to or greater than the amount of retirement income you estimate you’ll receive, it may not be a financially sound decision to retire now. 

You should consult a financial advisor to help you with these estimations and calculations – this isn’t a decision you can afford to get wrong.

How will I structure my retirement income?

Even if you’ve already begun to work on your retirement plan from an income standpoint, as you get closer to retiring, you’ll want to revisit your plan so you have a strong foundation of sources of retirement income, the biggest and most common of which include Social Security, retirement accounts, pensions, home equity, savings accounts and part-time work.

How long will my income last? 

Longevity risk, or outliving your retirement funds, is one of the greatest unknowns in financial planning, because it depends on a number of factors over which you may not have much control, like how long you’ll live, return on your investments and inflation. 

Although it won’t work for everyone, there is a “4 percent” rule of thumb that says if you withdraw 4 percent of your retirement savings during the first year of retirement, and then make withdrawals aligned with cost of living increases in the following years, your money should last for about 30 years. You’ll also need to account for inflation and taxes. Be reasonable and realistic in all of your calculations, conservative in your income estimates and liberal in your expense and withdrawal estimates.

What are my priorities?

When you think about retirement, what does it mean to you? Do you want to sell your home and explore the country in an RV? Do you plan to quit working full-time and get a part-time job or start your own business? Do you hope to spend your time with family and grandchildren? Is it your goal to leave a financial legacy behind? 

Developing a roadmap for your retirement in advance allows you to plan accordingly for your time and finances in your retirement years. A financial advisor can be extremely helpful in this process. 

What risks could affect my decision?

In addition to longevity risk, other factors that could affect your retirement plans and financial plan include a steep market decline; serious injury, illness or unexpected death; significant increase in inflation or interest rate fluctuation; and failure of your pension plan. Your retirement income can also be affected by other things, like life changes (such as divorce or the death of a spouse), public policy and long-term healthcare.

Although you can’t possibly be prepared to counteract every potential risk, you should minimize what risks you can through planning and preparation. A financial advisor can help guide you through “what if” scenarios that you need to have backup plans for.

What about healthcare costs? 

Healthcare is a huge budget line item for retirees. Medicare is an option, but there is a lot to consider about the different plans and coverage. Taking on a job that carries healthcare benefits is also a way to reduce the burden of healthcare costs in retirement. 

The bottom line is, don’t go it alone. A financial advisor can guide your decision-making process as you begin to think about whether the time is right for you to retire, as well as organize and shore up your portfolio and other sources of retirement income. A financial advisor can also help you navigate some of the complex and confusing risks and possibilities, so that your retirement plan can weather almost any storm.

It’s never too early to start planning for the future. Contact Align Wealth Partners to see how we can help.