How to Know When You're Ready to Retire

When it comes to deciding when to start your retirement, it can feel like a guessing game. There are a variety of financial and emotional factors to consider before making the move to the next phase of your life.

Man and woman in office discussing retirement

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While many workers look forward to retirement and the new changes it brings, others might struggle over when exactly to retire. There’s no perfect science or magic number to determine when to retire. But there are good indicators that, when watched and considered closely, may help provide the basis for a decision that is right for you. Paying attention to retirement savings and creating a plan for what to do during retirement may help you better understand when you are both financially and emotionally ready for retirement. 

Financial Readiness When Planning for Retirement

When a group of over 2,000 working Americans ages 40-70 were asked about retirement in a 2018 study, about one-fifth of them said they were financially unprepared for retirement.1^Indexed Annuity Leadership Council, “The State of America’s Workforce: The Reality of Retirement Readiness” 2018  While many retirees rely on Social Security benefits to help fill savings gaps, currently, Social Security benefits only cover approximately 40 percent of an average worker’s pre-retirement income.2^Social Security Administration, “Retirement Benefits” February 2020. Personal savings and Social Security benefits provide just a couple of the sources for retirement income and can be supplemented by other sources, such as individual retirement arrangements (IRAs), employer-sponsored retirement plans (401(k) plans, pensions, profit sharing plans, etc.) and fixed indexed annuities

Financial needs in retirement are as unique as each retiree. So, when considering whether you are ready to retire, review your financial picture to determine if you are financially ready to stop working. A retirement calculator can compare your income and current savings with your age and anticipated expenses to help create a retirement savings target. You can find a variety of retirement calculators online, free of charge. 

Retirement costs present one of the most significant factors to consider when gauging financial readiness for retirement. There are many potential costs that need to be considered to make sure your nest egg lasts as long as it can. 

Retirement Costs: Health Care

Health care stands as one of the most significant costs in retirement. A 65-year-old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement.3^Fidelity Investments Retiree Health Care Cost Estimate, 2019This doesn’t include the additional annual cost of long-term care, which, in 2019, ranged from $19,500 for adult day care services to $102,204 for a private room in a nursing home, according to long-term care insurer Genworth. 4^Genworth Cost of Care Survey , 2020

Taking the steps today to make sure you don’t outlive your money can make all the difference for entering into retirement. 

Retirement Costs: Housing

Housing also sits atop retirement expense lists, costing retirees 33 percent of their average annual spending. 5^U.S. Bureau of Labor Statistics, "Consumer Expenditure Survey." 2018  The 65-plus population, set to balloon 90 percent by 2040, brings with it a seismic shift in retirement living expectations, which are fostering innovation to align with boomer priorities. As a result, the housing industry is primed for one of the economy's most significant transformations.6^ Sisson, Patrick. “Curbed," The changing face of retirement: Apartment living, active lifestyle and rural homes," 2018

How you prepare for those innovations and the changing market is an important factor to consider in determining whether or not you are financially ready for retirement.

Retirement Costs: Transportation, Food and Other Living Expenses

According to data from the Bureau of Labor Statistics, older households typically spend an average of $49,279 a year on living expenses. While much of this includes costs for housing and health care, it also includes money spent on food, clothing, transportation and entertainment.7^Bureau of Labor and Statistics, “A Closer Look at Spending Patterns of Older Americans” 2016Having an understanding of how you spend, as well as how much, can help you better plan for your financial needs in retirement.

Emotional Readiness When Planning for Retirement

Financial goals are an important factor of retirement planning, but emotional readiness can often go overlooked in preparing for a new phase of life. Many find that working provides a feeling of validation, as well as other psychological benefits, including a daily structure and social interaction. Retiring may present a loss of those daily parts of life for some and create a risk for depression. 8^US News and World Report, “Can Retirement Be a Depression Risk?” 2017

Retirement is a significant change that brings emotional impacts. The change to retirement can bring more boredom, anxiety, restlessness and feelings of uselessness. 

So being emotionally ready for retirement can be just as important for your wellbeing as being financially ready. Consider creating a list of your goals for retirement. Do you want to travel? Spend more time with your grandchildren? Start a new hobby? Work part time? Move to a new city? After you’ve established your goals, create a plan to achieve those goals.   

Here are some factors to consider and steps you can take to determine if you are emotionally ready to retire: 

• Create a daily plan of how you would spend your days during retirement. If you thrive with a schedule, you might establish a retirement routine that helps you plan your days, such as setting aside time for exercise, social activities, volunteer opportunities and family meals. While your days don’t need to be rigid, having a set wake-up time and routine can help you feel more normalcy now that you aren’t going to work.

• Establish a retirement bucket list. Everyone has dreams of what they could do if they had more time, money and freedom. Sight-seeing, climbing a mountain or learning to speak French are just a few examples of what might be on some retirees’ bucket lists.

• Find or create an emotional support system of friends and family. If you and your spouse are friends with other couples, aim to invite them over for dinner or board games regularly. If you don’t feel like you have enough people to keep you socially active, consider taking advantage of the extra time in your life to make new friends.

• Pursue a new hobby or consider a part-time job as a bridge from working to full retirement. Having an “encore” job in early retirement can help provide the sense of fulfillment that came with working in your career. 

Making the decision on when to retire can be a complicated decision with many factors to consider before determining if you’re truly ready. Ultimately, though, it is a personal decision with answers as unique as each person looking to retire. Paying attention to both financial and emotional milestones and setting retirement goals will help find the path that’s right for you and your needs.



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