How to Determine the Right Time to Retire

how to determine the right time to retire

If you’re considering retirement, you’ve likely worked to establish and maintain a retirement savings nest egg throughout your life. And while you may be mentally or emotionally ready to retire, the most important question is, are you financially prepared?

While the general retirement age is between 62 and 65, there may be other factors to consider in your decision. Read on for tips that will help you determine if it’s the right time to retire or not.

Assess Your Finances

Before announcing your retirement, there are a few things to consider, such as debt, total funding available, and whether you’re prepared for an emergency.

Throughout your life, you’ve likely accrued debt, such as a mortgage, car loan, credit card, and more. If that’s true, you will want to make sure you have eliminated or paid down your debts before retiring. Outstanding debt can make it difficult to pay for both past and future expenses in retirement, so it’s best to assess your financial snapshot before deciding to retire.

You will also want to review your accounts to understand exactly how much cash you have available. Review your checking, savings, and emergency fund accounts to better understand where you are financially. It’s essential that you can cover everyday bills, as well as the unexpected, such as medical expenses or home repairs. If you have an account dedicated to emergencies, then you understand that those funds are allocated for future unknowns and should not be calculated into your everyday budget.

If you don’t have an existing emergency fund, consider starting one. The Slavic 401k blog has tips you need for creating and managing emergency finances.

Review Your Portfolio

Another aspect to consider is your total retirement portfolio. Similar to assessing your finances, you will want to review your retirement accounts to see how they have performed recently. Has the market taken a recent hit? Is the market better than ever? By reviewing the trends and most up-to-date account information, you will be able to gauge whether your nest egg is large enough for retirement, or if you should work a little bit longer.

If you need to make revisions to enhance your account, speak with a financial advisor about taking a more conservative investment strategy to help you reach your goals and protect existing and future funds.

If you’re unsure of how much money you need for retirement, use the Slavic401k retirement nest egg calculator as a guide.

Create and Review a Retirement Budget 

Retiring doesn’t eliminate the need for a budget, and if you’re trying to decide if it’s the right time, a budget will help you make your decision before you end your career.

Like any budget, you will want to calculate your monthly income and expenses, including loan payments, insurance, groceries and dining out, utilities, vehicle maintenance and more. A helpful tool is the 50/30/20 budget rule.

Essentially, the rule requires you divide your finances into three categories: 50% for essentials, 30% for wants and desires, and 20% for savings and debt payoff. With your total finances, assign each dollar a category to ensure you can continue to cover your cost of living in retirement. If not, it may not be the right time to retire. If you do, however, you will need to continue using a budget to keep yourself on track.

Another trick that financial advisors use is determining how you will replace 70-80% of your pre-retirement income in retirement. Does it come from Social Security benefits? Distributions from your 401(k) or IRA? Understand your financial snapshot before making a final decision.

Lastly, consider inflation and the consumer price index in your calculations. Ensure that your funds account for a standard 2.5% increase in prices every year, with the potential for more. You never want to live penny by penny, so ensure your savings has enough cushion if inflation rises, or accounts spiral.

Retiring is a huge accomplishment, and it’s important to ensure you’re financially prepared. To calculate what it takes to secure a solid retirement fund, use the Slavic401k calculator here. You can also explore the Slavic401k blog to learn about retirement savings goals for every age, and what you should know about retirement accounts in 2022.

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