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2019 will be another year when millions of Americans start their retirement. Knowing when the appropriate time is to retire is unique to each individual, but there are few key items you can follow.
We’ve put together a list of three guidelines to help you know if it’s time to confidently transition into the retirement phase of life, or put the brakes on retirement if you aren’t quite there yet.
Two-Fold Approach: It’s More Than Just Numbers
“The numbers are only one-half of the equation,” says Steve Cantillo, Wealth Manager at Doyle Wealth Management. “Being retirement-ready is a qualitative and quantitative conversation.”
It’s common to immediately want to focus on savings when talking about retirement, but one factor often overlooked is having a plan in place to fill your days. Aside from the saving component, it’s important to have a plan for a daily routine that will replace your (what will eventually be) past routine of going to work each day.
If retirement is on your horizon within the next few years, start putting together a list of ideas of how you can maintain relationships and community. Having a plan for social engagements in place and spending time finding out what makes you happy, before you retire, is important to your overall wellness and happiness during retirement, according to a report by the American Psychological Association.
“Some retirees aren’t quite mentally prepared for the change in lifestyle in retirement. The physical act of going to work everyday is too strong a habit to quit cold turkey – whether it’s the interactions with coworkers or keeping the mind busy with work, we require the stimulus to keep us going,” says Cantillo.
If going full-on retired isn’t your style, one alternative option is a phased retirement plan. This could help serve as a slower introduction to retirement, rather than an abrupt change to your day-to-day life and routine.
“It might reduce the burden on drawing down your investments, provide health insurance and give you something to focus on as you enjoy all the extra free time,” says Cantillo.
Crunch the Numbers
Of course, the flipside of knowing if it’s the right time to retire is looking at the numbers. This is where the quantitative approach comes into play.
“Generally, folks who can save 20% or more towards retirement have the best chance of success, partly because they’re saving so much, but also because they are accustomed to living within their means,” says Cantillo.
“Additionally, retirees who can keep their necessary withdrawals from their savings to 4% or less per year have the best probability of not outliving their money.”
Reduce Your Expenses
Before jumping into retirement, you want to make sure you have a clear view of where you spend your money. “Identifying your discretionary and non-discretionary expenses will allow you to be flexible and responsive if and when the time comes to cut back on expenses,” says Cantillo. “It also paints the most honest picture of what your priorities are – for example, you might say that travel is important to you, yet when reviewing your cash flow, your expenses don’t support the claim.”
So while it’s important to have your savings in check, it’s equally important to understand the amount you will spend once you’re retired.
“The amount you’re going to spend will inform other components of your plan. If your monthly spending is low, you might be able to meet your needs with a pension and social security, in which case you might not need to save as much or take on unnecessary risk in your investment strategy,” says Cantillo.
And with reducing expenses comes eliminating debt. “Although some debt, like your mortgage, is necessary and useful, the key to this game is reducing expenses. To that end, you’ll want to eliminate as many debt payments as possible.”
When it comes to retirement, everyone’s situation and timing is different. But if you develop a sound retirement plan with a Certified Financial Planner™ it can help to ensure these guidelines (and more) are in place.