It’s the ultimate gamble.
Retire too soon, and you risk financial ruin or days on end of boredom. Wait too long, and you’ve missed the prime retirement years when you still have the energy (and good health) to enjoy your work-free days.
How do you know when it’s time to retire? Well, there’s no magic age, and you can’t look into a crystal ball for your answer.
But you can look at common signs that show you’re financially and emotionally ready to retire.
Before you trade in your regular paycheck for your pension, read the following details on when it’s time to retire.
1. You Can Live on Retirement Savings
Do you have enough retirement savings to live comfortably without your normal paycheck?
There isn’t a standard amount of money you need to retire. Your specific financial situation and your goals for retirement dictate what you need. Simply put, your retirement benefits need to cover your expenses.
If you’re thinking of retiring early, you may need more retirement savings to last those extra years.
Let’s look at both parts of the puzzle. First, what’s the total retirement amount you’ll receive each month? Calculate any retirement plans you have through work and your Social Security benefits.
List all expenses and financial obligations to create your retirement budget. Then, add in the cost of things you want to do in retirement, such as regular travel or living a snowbird lifestyle.
If your retirement income only covers your expenses, it may not be time to retire yet. Without a cushion, you’re not prepared for unexpected expenses or emergencies.
Have you paid off most of your debts to make your expenses as low as possible? Do you own your home and car outright? When your expenses are low, it may be the best time to retire.
How do you know when to retire based on finances?
Test it out by spending only the amount of your retirement benefits for a few months. If you can make it on the lower amount, you may be ready to live that way permanently. If you can’t cover your bills or you feel restricted, consider working a few more years.
2. You Have Health Care Coverage
Your medical expenses often increase as you age because of potential health issues. From age 70 on, people average medical costs of $122,000. Out-of-pocket costs are more than $300,000 for 5% of people in that same group.
Do you have medical coverage in place to help cover those expenses? Most people qualify for Medicare at age 65.
Part A coverage is free assuming you worked a minimum of 10 years and paid Medicare taxes during that time. You have the option to buy the coverage if you don’t meet the work requirements.
If you opt for Part B coverage, you pay a premium based on income and other factors.
You need other coverage in place if you plan to retire earlier than 65. That might include coverage from your spouse’s plan or private coverage.
The bottom line? Know how you’re going to cover medical care and factor in premium costs before you retire.
3. You Can Get Maximum Retirement Benefits
Retirement plans often have early withdrawal penalties if you take your money too soon.
If you take money from your IRA before you’re 59 1/2, it’ll cost you an extra 10%. The money also becomes taxable on your income taxes. Those penalties take a big chunk out of your retirement benefits.
Check the specific withdrawal requirements and early withdrawal penalties for your retirement plans. Working a few more years to avoid penalties makes it easier to cover your expenses.
You can take Social Security income starting as early as age 62. But you receive less money than you would if you wait.
If you retire at 62, your monthly Social Security benefit could be up to 30% lower.
Your age when you start collecting determines how much you get for the rest of your life. It’ll never increase once you start receiving Social Security. Calculate your Social Security benefits to decide if you’ll get enough to retire now.
4. You Don’t Enjoy Work
You can hate your job at any age. But if you’re getting closer to retirement age and also finding less satisfaction in your job, it may be time to retire.
Do you feel like you no longer have a sense of purpose in your job? Maybe your work takes more energy than ever with little return.
Try taking an extended vacation from work to see if the break helps cure that feeling of burnout. If you’re still feeling no passion for work when you get back, you may find more fulfillment in retirement.
5. You Have Plans for Retirement
Are your retirement plans so big and exciting that you can’t think about anything else? Knowing how you plan to spend your retirement years can help you know when to retire.
If you don’t know what you want to do after you retire, you may feel more comfortable working a few more years. Sitting home all day with nothing to do can leave you feeling unfulfilled.
If you feel like your job is keeping you from doing what you want to do, it could be a good time to exit. Leaving now gives you more time to pursue those options. You also have more energy to follow through with your plans.
6. You Have Health Issues
Sometimes it’s your body that tells you when it’s time to retire. Retirement is your chance to travel, bond with your grandchildren, and devote time to your hobbies and interests. Health issues can affect those big plans.
Retiring before your health deteriorates gives you more time to enjoy your retirement years. If the stress or physical demands of your job are part of the problem, retiring may help improve your health.
7. Your Family Agrees
No, you don’t need approval from every family member. But retiring before your family is ready can cause tension.
Discuss retirement plans with your spouse early to get on the same page.
Do you want to retire at the same time? Do you both agree that it’s financially a good time to retire? Are your plans for your retirement years compatible?
You may need to continue working if you have dependents with special needs or who rely on you financially.
Find Out If It’s Time to Retire
Can you retire yet? With so many factors to consider, making this decision can feel overwhelming.
Before you decide if it’s time to retire, contact us for personalized advice based on your situation.
2019-83138 Exp 7/21
This material was prepared by an independent third party. Guardian nor any of its subsidiaries offer Medicare.