How to Determine the Right Time to Retire

How to Determine the Right Time to Retire

Retirement is a significant milestone in life, marking the end of a long career and the beginning of a new chapter filled with opportunities for relaxation, travel, hobbies, and spending time with loved ones. However, determining the right time to retire can be a complex decision influenced by various factors. 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. Here, we’ll explore some key considerations to help you decide when it’s the right time for you to retire.

Assess Your Financial Readiness

The foundation of a comfortable retirement is financial security. 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.

Evaluate Your Savings and Investments: Review your accounts, including your 401(k), IRAs, pensions, checking, emergency fund accounts and other investment accounts to understand exactly how much cash you have available. 

Pay Debts Off and Review Bills: Throughout your life, you’ve likely accrued debt, such as a mortgage, car loan, credit card, and more. Before retiring, it’s important to eliminate or reduce outstanding debts balances. Also, make sure you can cover everyday bills and unexpected costs like medical expenses or home repairs. Remember, your emergency fund is for future unknowns and shouldn’t be part of your regular 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.

Plan for Healthcare Costs: Healthcare can be one of the most significant expenses in retirement. If you retire before you are eligible for Medicare at age 65, you’ll need to find an alternative health insurance plan. Additionally, consider the potential need for long-term care insurance.

Review Your Portfolio

Another aspect to consider is your total retirement portfolio. Evaluate your retirement accounts’ recent performance. Has the market taken a hit, or is it performing exceptionally well? By reviewing the latest 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 extend your working years.

If you find that adjustments are necessary, consult a Financial Wealth Advisor about adopting a more conservative investment strategy to protect your current and future funds while helping you reach your goals.

Unsure of how much you need for retirement? Use the Slavic401k retirement nest egg calculator as a helpful guide.

Create and Review a Retirement Budget 

Retiring doesn’t eliminate the need for a budget. In fact, creating a detailed budget can help you decide if it’s the right time to end your career.

Steps to Create Your Retirement Budget: 

Apply the 50/30/20 Rule: 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.

  • 50% for Essentials: Allocate half of your income to necessities like housing, food, and healthcare.
  • 30% for Wants and Desires: Set aside 30% for discretionary spending, such as hobbies and entertainment.
  • 20% for Savings and Debt Payoff: Use the remaining 20% for savings and paying down any remaining debt.

Determine Income Replacement: A good rule of thumb is to aim for a retirement income that replaces about 70-80% of your pre-retirement income.  Financial advisors use this method to understand your financial snapshot. 

Consider Inflation: 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.

Tools and Resources

We have tools to streamline money management

Retiring is a huge accomplishment, and it’s important to ensure you’re financially prepared. Utilizing a budget post-retirement will help maintain financial stability and provide peace of mind. If your financial assessment indicates that your current resources may not sustain your desired lifestyle, consider postponing retirement for added security.

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