Ask yourself these 6 questions to help you decide when it’s time to retire and begin the next phase of your life.
Choosing when to retire is a decision that’s unique to each person — one that involves considering a variety of personal and financial factors. Each individual will arrive at a different conclusion: Some retire earlier than they expected to, while others continue to work past the age they intended.
As you approach retirement, we can help you determine an ideal retirement window that aligns with your personal vision and financial goals.
To help you clarify when the right time may be to retire, here are six questions to ask yourself:
In this article:
- Do you know how you want to spend your time?
- Have you reached your retirement savings goal?
- When will you take Social Security?
- How will you cover health care expenses?
- Is your debt manageable?
- Is your cash reserve sufficient?
- Questions to discuss with us
1. Do you know how you want to spend your time?
After spending decades working, reaching retirement can be an adjustment, especially if you don’t have a plan for how you’ll spend your time. Maybe there are hobbies you’ve always wanted to pursue, causes or organizations you want to support by volunteering or destinations you’ve always wanted to visit.
Having a plan for your post-work life will bring physical and emotional benefits, but it’s also critical for your finances. Where you live and the lifestyle you hope to enjoy have a direct impact on your expenses, so it’s critical to have a clear picture of what your spending will look like.
Learn more: Planning your ideal retirement lifestyle
2. Have you reached your retirement savings goal?
Find out where you are in your retirement savings journey. Are you at or near your retirement number? Review your funds and decide how much more you need to save before you can comfortably retire and easily cover all your expenses. Tracking these numbers will help you clarify how many more years you may — or may not — need to work.
Learn more: How much do I need to retire?
Retirement income calculator
Use this calculator to find out how much monthly retirement income your savings could generate for you.
Run the numbers3. When will you take Social Security?
Even if you have a healthy investment portfolio, Social Security should be a consideration in your decision-making process. There’s an eight-year window, typically between ages 62 and 70, when you can start claiming Social Security retirement benefits, and the implications of when you decide to take your benefits can be significant.
Claiming Social Security any time before reaching full retirement age (66 or 67, depending on your birthday), for example, will reduce your monthly payment, while waiting to claim benefits after reaching full retirement age will increase your monthly benefit each year until you turn 70.
On the other hand, if you plan to retire before you are eligible to take Social Security, consider whether you’ll want to supplement your income in the meantime and how retiring early may affect your future Social Security payout.
Learn more: Understanding Social Security benefits
4. How will you cover health care expenses?
Health care is among the biggest — and most overlooked — expense in retirement. And since most Americans rely on their employer for medical insurance, it’s often a significant factor in deciding when to retire.
If you retire at or after the age of 65, you can rely on Medicare for your health care coverage, though you will still need to pay premiums and buy supplemental insurance for dental, vision and hearing coverage.
Medicare also doesn’t cover nursing home care expenses, so you will need to consider how to plan for the possibility of long-term care costs.
If you plan to retire before you’re eligible for Medicare and you don’t receive health insurance from your former employer (or through your partner’s employer), you’ll have to get health insurance on your own. You have a variety of options, depending on your health care needs and your budget.
Learn more: Planning for health care costs in retirement
5. Is your debt manageable?
Any money you spend on paying down debt is money that isn’t available for your retirement goals or living expenses. As such, it’s generally a wise move to lower your debt level to a manageable threshold before deciding when to retire.
Reducing your liabilities is particularly important if you have high-interest debt, such as from credit cards. Low-interest debt, such as a mortgage, isn’t as risky, but you’ll still want to decide whether it’s a loan you’ll feel comfortable carrying into your retirement years.
While it’s a common goal to have a paid-off home before retirement to reduce overall expenses, it doesn’t always make sense to pay off your mortgage early, especially if you have a low interest rate or have to dip into your retirement funds to do so.
Learn more: Effective debt management: Strategies and tips
6. Is your cash reserve sufficient?
Having adequate cash reserves is a key step to prepare for retirement, as it gives you the ability to handle unanticipated expenses without going into debt, dipping into savings or selling investments before you want to.
What qualifies as an adequate cash reserve will depend on your expenses and lifestyle. However, it’s generally recommended that retirees have a cash reserve to cover as much as 12 to 24 months of essential expenses to protect against unexpected medical expenses and avoid selling assets while the market is down.
Learn more: Establishing a cash reserve: How much should you have?
Retire at a time that’s right for you
When it’s time to decide when to retire, we can help you evaluate your options and prepare your portfolio and your finances according to your financial goals.