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We all may know that it is smart to start saving for retirement early, but does this mean we actually do it? Retiring from the workforce means entering a new phase of life. It can be both scary and empowering. No matter how or when you get there, it is important to be prepared. Since most of us probably want to reach retirement or at least semi-retirement sooner rather than later, we need to use the right measurements that help determine exactly when you can call it quits on your day job.

Healthy Retirement Accounts

First and foremost, you want to have enough money to last through your golden years before retiring. Some people may be OK leaving their full-time jobs with the expectation that they will continue to work at least part-time. Others may want to know they can live until 95 without ever worrying about bringing in more income from work. How much you need to save for retirement will depend on your specific goals. For most people, this means a combination of accounts including individual retirement accounts, 401(k)s and — if you are lucky — pensions.

Penalty-Free Income

Since many retirement savings vehicles assume you will work until you turn 60, you can face an early-withdrawal penalty for taking funds before you hit that milestone. Know where your money is, which funds have penalties for taking money early and how much of your money is in those particular accounts. And remember that while your retirement funds may come with penalties for early withdrawal, there may be other assets you can liquidate without penalty. For example, if your retirement plan involves lots of travel, you may decide to sell your home to access that equity since you won’t be living there for most of the year anyways.

A Plan

When you are determining this, you are starting to formulate a plan. You may be able to still retire in your 50s if your first withdrawals are from accounts without penalties for early withdrawals. You can also plan when to start taking your Social Security benefits based around the other income streams you will have in retirement. While you can start receiving benefits when you are 62, the longer you hold off (until age 70) the more money you will receive each month.

Financial Freedom

The easiest litmus test to see if you are ready for retirement is financial stability. If your savings have exceeded your retirement goals, you have adequate insurance coverage, are debt-free and know that you can continue to afford your lifestyle even if you leave the rat race, you are truly ready.

It is not always clear when the right time will be for you to retire, but it’s important to have an idea of what you want and are capable of so you can save and spend accordingly.

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