Thinking about Retirement? Factors to Consider Before Deciding

I am sometimes asked by my clients: can I afford to retire now?  If not, when does it look like I could retire?

The first question I ask is, is your job stressful?

The next step is to “run the numbers”.  It is probably a good idea to get a financial planner to help you navigate a software program designed to determine if you have enough money to maintain your lifestyle during retirement.

The most important item to determine and perhaps the most difficult number to come up with is, how much money do you need to have coming in each year during retirement so that you can live as you want.

To make it a little easier to come up with this number, think about how much income you need if you retired right now.  Forget about inflation and taxes.  Your planner can help you with that.  If you are doing this alone, then your software program will allow you to input an inflation number.  For taxes, you can look at what your adjusted growth income is, then subtract your personal exemption and look up your appropriate income tax rate.

If you are under 65 it is important to investigate how you will handle health insurance.  Sometimes, you can continue health insurance coverage through your employer.  If not, you will have to obtain private health insurance.  Either way, it can be an expensive item.  In fact, this one expense keeps some people from retiring before they reach age 65.

Before you seriously consider retiring, one of the most important things to figure out at least for some people is what are you going to do day to day after you retire.  This may sound simple, but I have clients who retired, got bored, and went back to work.  You may want to try out some new hobbies or interests before retiring.retirement earnings shown with Money and chart

Another important item to consider is how much are your investments going to earn over your retirement lifetime?  Don’t make the mistake of overestimating how much you will earn (percentage) on your existing assets. It is best to assume slightly on the conservative side with your estimations to mitigate the possibility of outliving your assets.

Another thing to take into consideration is, do you have any unusual expense items, such as, buying a new car, helping a child or grandchild with a wedding, or helping a grandchild with college expenses. It is completely normal to have these expenditures in retirement however, failure to account for them may cause an issue for your retirement plan.

If you are planning on retiring but not right now, you can still participate in a retirement income study.  In fact, it is very helpful to do this well before your projected retirement age.  This will give you the advantage of being able to see if there is a problem when there is still time to “fix it”.

Back to my first question: is your job stressful?  My advice is, if your job is not too stressful, keep working, especially if you do not have plenty of cushion.

Many financial planners will walk you through a retirement software program without charging you a fee.  They will do this as part of trying to build trust with you, show their value, and earn your business.

Craig M. McDaniel, CFP

 This commentary is a general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such purpose.

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