“Can I retire?” The answer is rarely a binary yes or no. Here are a few questions to evaluate as you think about your financial readiness:
1. How much income do you need?
Monthly expenses don’t stop in retirement.
Take a look at your budget or a recent bank statement.
- Which fixed expenditures will you continue to make during retirement?
- What kind of discretionary expenses will you have?
- What is a reasonable number for large expenses, like big trips, that you would like to make?
This exercise should give you an idea of the income you’ll need your retirement accounts and Social Security to cover.
You may also want to plan for one time expense outlays, like buying an RV, or remodeling your home. Money you have earmarked for these expenses should not be used as a source of income in your retirement planning.
2. Are your debts paid off?
Industry guidelines recommend that, while working, your home expenses (mortgage, taxes, etc.) should make up no more than 28% of your monthly gross income, and total debt payments should stop at 36%.
We recommend retiring debt free. By eliminating debt prior to leaving the workforce, your retirement plan becomes more robust to unexpected financial surprises. Without W-2 income, you want to protect that income-generating nest-egg from unnecessary withdrawals.
3. What income does your retirement savings provide?
“New Research Says Retirees Need X In Retirement Savings”
Versions of this misleading headline have run rampant over the last decade. Having built countless financial plans, the fixation on “one-size-fits-all” retirement savings amounts is frustrating.
The required amount of retirement savings is entirely dependent upon income needs.
We use financial planning software that simulates thousands of different scenarios to determine the sustainable amount of income that our clients can take. Inputs include the size of their portfolio, pension income and Social Security benefits.
4. How much Social Security will you receive?
Social Security is the bedrock of any retirement plan, the base amount of income you’ll receive before we touch any income generated by your retirement portfolio.
To learn the amount you’ll receive at different ages, visit ssa.gov and download your statement of benefits. You’ll see a separate amount for each age from 62 to 70. You’ll notice, by waiting longer to take Social Security, your annual benefit increases.
5. Are your investments allocated to support your retirement goals?
Given that you are pulling income from your retirement accounts, you want to make sure that you protect their value while keeping up with inflation. In order to do that, we need to be deliberate about the kind of risk we take and why.
To protect against these risks, you need to have an understanding of the way that inflation or market volatility impacts the particular types of stocks and bonds that you hold in your portfolio. We manage these risks for clients on an ongoing basis through changing market environments.
Conclusion:
The answer to “Can I retire?” is rarely a binary, yes or no question, and varies from person to person. We help clients work through these questions, informed by decades of helping pre-retirees in this stage of their life. If you would like to start exploring your own retirement in greater depth, please reach out to our team to schedule a one-on-one discussion.