Retiring can be a frightening subject. Where is the income going to come from once you pull the plug? How much will you need? How will you spend your days? These are all important questions you have to address. But what if you don’t have the answers?
The last thing you want to do is get this wrong. If you retire too soon, you may be forced back to work but find it very hard to land a job. If you retire too late, it can cost you your most precious treasure – your time. How do you know when it’s time to retire?
The best way to work out your answer is to change the question a little. Instead of asking when it’s time to retire, ask yourself why you can’t right now. As I see it, there are two reasons you might still be punching the clock.
The main reason why people hold on to their jobs is because they need the money – or at least they think they do. Of course you might have to work right now – but are you sure? In my experience, many people work far longer than they really have to. Are you one of them?
The only way to really know is to run some financial projections. Don’t worry – you don’t have to hire a fancy financial planner to do this, you can do this all by yourself. All you need is a little information:
- How much do you spend now?
- How much do you think you’ll spend when you retire?
- What will be your pension/Social Security income?
- How much income can you derive from your investments?
Once you have this information you’ll know where you stand. If the picture isn’t as rosy as you hoped, you can probably take steps to change the equation a bit. I recently got off the phone with a client who was worried sick about her future. She was convinced that she’d never have the scratch to retire. But then she had a change of heart.
She realized that if she just sold her home and moved to a lower-cost location, she could basically retire whenever she wanted to – including right now. That move would free up capital to create more income, plus it would eliminate the cost of home ownership. True, she’d have to rent. But that would be far less expensive than maintaining a home. In this case, it was a great solution that created a lot of freedom.
So if you want to know if it’s time to retire or not, your first order of business is to gather the information to answer the four questions above. Keep in mind that once you retire your health care might be more expensive so you’ll have to add that back in. Also, you may lose your life insurance. That may not be a big concern because you may not need it at that point. Still, it’s important to address the financial side of retirement with eyes wide open.
Even if you can afford to retire, you may not be ready to do so. You may not want to say goodbye to your friends at work or you may not want to give up the hustle and bustle. These are real factors and it’s important to acknowledge where you really stand on the social aspect of employment.
Of course the best solution to these challenges is to get involved with people and activities outside of work. I’ll admit that I’m lousy at this. I love what I do and I work all the time. I honestly have no idea what I’d do if I wasn’t working. When I did my numbers, I realized that this was a far greater obstacle to my retirement than the financial issue. I’m working on it now but it’s not easy.
In order to know when to retire, ask yourself why you aren’t retired already. Figure out where you stand financially and socially. Both are equally important. Then, be open-minded about the tweaks you are willing to make in order to make your retirement dream a reality.
Are you ready to retire? Why or why not?
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Image: Yuri Arcurs