The question of when you can retire is not a simple one. Answering this question involves looking at your complete financial situation. Consider the following five steps in order to determine if you are ready to retire.
- Make a budget. Look at how much you spend each month compared with how much you bring home in income. It is also important to consider how your spending will change after retirement. You also need to examine how much of your income goes into savings. When retired, you will likely have less income that is dependent on Social Security, pensions and investments. If your pre-retirement monthly income is used primarily to pay bills, then you are most likely not ready to retire.
- Have savings. Calculate the amount of savings you will need to supplement your expected retirement income. You should not retire until you have enough savings built up to last the rest of your life expectancy.
- Plan for long term care. Nursing home care costs over $8,000 a month. Do not retire without a plan to cover these costs – nearly 70% of Americans will have to. Meet with an elder law attorney to discuss some of the options for paying for long term care.
- Pay off debt. Avoid retiring with debt. Not only will you have to pay monthly expenses with a reduced income, but you will also have the financial drain of loan payments. This could drastically limit your retirement lifestyle.
- Want to retire. While this may sound silly, many individuals find their purpose in life from their career. Without that life may not be as fulfilling. Make sure you have something in life that will make retirement enjoyable before you leave the workforce.