5 Signs You Are Ready to Retire
Are you daydreaming about the day you retire? Are you mulling over all the activities you could be doing if you weren’t working? Before you give your boss notice, make sure your finances are prepared. Here are five signs that you are ready to retire.
1. You Know the “When” of Social Security
It’s important to know the impact your Social Security decisions will have on your retirement income. You’ll reach what’s called “full retirement age” (FRA) between 66 and 67 depending on the year you were born, and at that point, you’ll receive your full benefit amount based on your work history.
If you claim Social Security benefits before FRA (as early as age 62), you will receive a reduced benefit for life. If you postpone past FRA, you can increase your total amount for each month you delay up to age 70.
Your Social Security decisions depend on your unique situation, including your finances and longevity expectations. Make sure to consider your spouse’s needs as well. If you die before they do, can they expect a higher benefit based on their work record or your work record (i.e., survivor benefits)? The answer may influence your decision about when to take Social Security.
2. You Tested Your Retirement Budget
Our Greenwood Village, Colorado retirement planning firm generally advises that soon-to-be retirees create a detailed budget for retirement at least a year before they retire. (Three to five years would be even better.)
After you have prepared a budget, you’ll want to test it out. Live on your retirement budget for at least a month, then ask yourself if it’s sustainable. Do you feel good about your finances? Then you might be ready to go.
If you feel like you’re just getting by, then you have time to maneuver. Strive to pay off high-interest debt such as credit cards, and perhaps with the assistance of a fiduciary financial advisor, adjust your portfolio so that you balance your risk and return needs. Also consider contributing more to your retirement plans, such as your 401(k) or IRA, or even delaying your retirement date a year or two.
3. You Have Health Care Covered
Having a plan for health expenses is essential before you retire. According to Fidelity’s Retiree Health Care Cost Estimate, the average couple retiring in 2021 can expect to spend $300,000 in health care and medical expenses in retirement. If you’re single, the cost is estimated at $157,000 for women and $143,000 for men.
If you need long-term care, that price tag will only increase.
Assess whether your retirement income can absorb such costs or if you need to earmark a portion of your retirement savings. Saving into a health savings account (HSA) can help give you a cushion, providing tax-free withdrawals for qualified health costs.
In most cases, you become eligible for Medicare at age 65. It helps to understand beforehand your Medicare options, so take some time to do your research. It may give you peace of mind just to know you are ready.
If you’re retiring early, you’ll need a plan for health coverage for the period before Medicare enrollment. This could mean getting coverage under your spouse’s employer-sponsored health plan, signing up for COBRA benefits, or taking advantage of the health insurance exchange (the tax credit you receive could help offset the premium).
4. You and Your Spouse Are on the Same Page
As financial advisors, we have helped couples who never shared their retirement plans before talking to us to get on the same page. We’ve seen firsthand how crucial regular discussions are in promoting retirement well-being.
Talk to each other about your retirement plans. What does a typical day look like? What are your shared activities? What are your solo ones? What big-ticket dreams do you want to fund, either as a couple or as individuals?
Make sure you both understand your changing finances in retirement—it can help prevent overspending. And if one of you is retiring before the other, you may want to discuss considerations like household chores (will the retiring spouse take up a larger share?), part-time work, activities, and “fun money.”
Having a shared vision can help increase harmony and create a more gratifying retirement.
5. You’ve Begun Penciling in Your Activities
A fulfilling retirement isn’t just about having enough money. It’s about living in a way that fulfills you. Start planning now for your great tomorrow by making sure you’re emotionally ready. Consider the people and activities that will help build a purposeful life.
What hobbies and passion projects light you up? What friends and family do you want to see regularly? Do you want to volunteer, or do you plan to work part-time as a consultant? You may not want to do either, and that’s fine. But just know that looking out the window with a coffee mug in hand, as blissful as it sounds now, will get old.
We, humans, are meant to balance non-activity with activity. So it can help to have specific ideas about the people and activities that will offer fulfillment and connection once you retire.
Final Thoughts
If you hesitated at any of these five signs that you’re ready to retire, take heed. That “not quite right” feeling is important. You may need to implement action steps to better prepare. You might also consider working with a fee-only financial advisor with expertise in retirement planning who will help create a comprehensive plan based on your situation, needs, and goals.
And if you have decided you are ready, we wish you a very successful retirement!
Our Greenwood Village, CO fiduciary financial advisory firm offers a complimentary 15-minute call. We can briefly discuss your financial situation and retirement concerns, and share how we may be able to help.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice. This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.