More and more people are asking this question as the baby boomers wind on down toward retirement age. I’ve seen it in my own extended family as my parents, aunts and uncles reach their 60’s and beyond. Can I retire yet is becoming an all too common question to which not enough people know the answer.
On that note, I’ve put together a list of benchmarks that can help nearly anyone determine whether or not they’ve reached that golden age where they no longer need to work. Retirement isn’t just about not working – it’s about having the freedom to work or not work and to do what you want to do. Are you at that stage where you are financially prepared to have that choice?
Find Out if You are Ready to Retire
There are several benchmarks you can use that will help you determine whether or not you’re financially ready to have the option of retirement. After you check the benchmarks against your own financial picture, check your score below to help determine how far away you are from retirement readiness.
I Have All Debt Paid Off
Being debt free is a vital component of a successful retirement plan. No debt means no payments to worry about, leaving you with only the need to provide for basic expenses.
I’ve Determined How Much Money I Can Realistically Live on Annually in Retirement
According to the Bureau of Labor Statistics, the average yearly expenses for those aged 65 to 74 was $46,000. In order to be retirement-ready, it’s important to have a realistic and thorough budget figured out that will ensure you know how much money you need to live on in each year of retirement.
I Know How Many Years I Need to Have Provided for in Retirement Savings
If you’re 50 and wanting to retire, chances are you should be planning on having a good 35 years worth of yearly expenses in retirement savings. Talk with a financial planner to determine how many years you’ll need to provide income for via investments in your retirement years.
I’ve Switched My Investments to Lower-Risk Categories
When you’re nearing retirement age, the goal isn’t to grow your money so much as it is to maintain your investment earnings. Lower risk investments may yield a lower ROI (return on investment) but they’ll generally also yield a lower risk of loss of money (check our guide to investing for retirement).
I Have Made a Financial Plan for the Lifestyle I Want to Live During Retirement
Those who are considering retirement will do themselves a favor by making a plan for how they want to live during retirement and will work the numbers to be sure they can live as they desire from a financial standpoint. Champagne tastes on a beer budget don’t work in the real world.
I Have a Plan for Bringing in Extra Income if Need be
Sometimes during retirement there are extra expenses that come up unexpectedly. A plan for bringing in extra money if need be, whether that be through selling an asset or some other means of earning money, means extra security during retirement.
I Have a Solid Estimate of My Post-Retirement Medical Costs
Medical expenses are one of the top items that take retirement dreams away from people in today’s world. Knowing what medical coverage you will have post-retirement and what medical costs you’ll be responsible each month for will help you to budget more wisely as you prepare for retirement.
I’ve Created a “Bare-Bones” Retirement Budget as a Backup Plan
As you plan for retirement, there should be two budgets in your financial game plan arsenal: the first should entail your ideal budget where you have the freedom to spend according to your original plan. The second budget should be a “bare bones” budget where you know exactly how much you need to live on without any extras. Knowing both of these numbers will give you some added security against unexpected expenses.
I’ve Mapped Out Other Potential Living Arrangements if My First Choice Doesn’t Pan Out
Living expenses can be another costly post-retirement snafu. It’s important as you plan to retire that you have two or so backup living arrangement plans that are affordable for you in retirement if your first plan for where and how you’ll live doesn’t end up working out.
I’ve Created a Plan for Potentially Deteriorating Health
Chronically deteriorating health or even acute health problems can drain retirement savings very quickly. While most states have programs that will help a retired person pay for some expenses should they not be able to afford it, many of those programs require that your retirement savings be used first. For this reason it’s important to have a plan for a situation where you may need to provide for mounting health care costs, just in case.
Score Your Retirement Readiness Below
8-10: Chances are you’re ready to retire!! Meet with a financial coach and/or financial planner to make sure, and then hand in that resignation when you’re ready!
4-7: You’re well on your way! You may have a few more things that you need to do, however, before you turn in your notice. A trusted financial advisor can help you determine the next steps you need to take.
1-3: You’ve got a good start, but there’s more work to do. Focus primarily on making sure debt is paid off and on saving, saving, saving as you work to better position yourself for your impending retirement.
So: How did you score? How close are you to being ready to retire? What steps do you need to take to get there?