Retirement: Is now OK to retire? What should I consider before making that decision?
However you may feel about retirement, it’s a reality you’ll have to face eventually. Some factors to consider before deciding to leave the working wold.
Whether you’re dreading retirement, looking forward to it, or not thinking about it at all, it will inevitably come, ready or not. The average American spends around 20 years in retirement, so this phase of your life needs careful thought through.
How do you know that you’re prepared for this particular big leap? What should you weigh up before taking that step into the post-work world? Here are some factors you should consider.
1. Your age
If you are tired of working and want to retire early, you might want to think again. The age you retire will affect how much your monthly benefit will be. It’s best to wait until you reach full retirement age to make sure you get the maximum benefit amount.
The year you were born also has an effect on when you will reach full retirement age. If you were born from 1943 to 1954, that would be 66. The full retirement age gradually increases for those born from 1955 to 1960, until it reaches 67. People who were born in 1960 or later will receive full benefits when they turn 67.
Delaying your retirement can increase your benefit, but only until you reach 70. After that, the amount will no longer go up, so there is no further motivation to delay claiming your benefit.
You can check the full retirement age chart here.
2. Your future lifestyle
Have you thought about how you will spend your time as a retiree? Some people who stop working are suddenly caught flat-footed with no idea what to do with all the time on their hands. This is part of being mentally prepared for this stage in our life.
What will your lifestyle be? Will you work part-time? Will you travel the world? Will you set up a little business? Where will you live? Aside from having a better grasp of how your day-to-day will look like, this is also a good way to see if you can handle the financial aspect of your future.
3. Financial readiness
Simply put, do you have enough money to retire? It’s important to look at your savings and income streams, such as your 401(k) and other investments. Seeing how much money you have will also determine if you can afford to do all the things you want to do, or live where you were intending to.
It’s important to draw up a detailed budget, especially as you can assume that you will have a much-reduced income. Your spending is also going to be vastly different from the time that you were working. When making your budget, include your fixed costs such as rent, utilities, and food; add your optional costs such as dining out, shopping, and travel; and don’t forget taxes and other contributions.
When you’ve listed all your expenses, compare them to your monthly income and see if they match, and then adjust accordingly if they don’t.
4. Outstanding obligations
One big consideration when contemplating retirement is your debt. Do you still have a lot to pay off on a house, a car, or a credit card? If the amount is considerable, you may want to put off retirement until you’ve paid off more of what you owe.
Outside of debt, there’s also the matter of family obligations. Are there family members who still depend on you? Going into retirement can affect those who are financially dependent on you, whether it’s your spouse, your children, or your parents.
5. Future medical costs
Medicare will cover most of your routine health-care expenses if you retire at 65 or older, but there are still some costs that you will have to shoulder. Medicare doesn’t include long-term care and most dental concerns. You may want to get supplemental health coverage to take care of your other health needs, and this could increase as you get older.
The thought of retiring can be daunting, but it can be managed. It’s best to be realistic in your expectations, thorough in your planning, and early in your preparation, if you are to do it right.