When you want to retire is important to consider as you save and invest in the future, especially if early retirement is on your radar. After all, the sooner you retire, the more time you'll have for traveling, visiting with friends and family, or pursuing the hobbies you may have neglected during your working years. Getting the timing right is important to ensure that you've saved enough; you should also be prepared for an unexpected forced retirement earlier than you had planned. If you're on the fence about when to retire, these signs may signal that it's time to leave the daily grind behind for good.
Student loans, car loans, credit cards, and a mortgage can impact your ability to save and invest for retirement. If you're entering retirement with debt, it can continue to affect how you spend and the type of lifestyle you're able to enjoy. If you've cleared all your debts, deciding when to retire becomes much easier. When there's no debt in the picture, you have much more flexibility in how you budget and spend your savings.
You've Estimated Your Retirement Needs
One of the biggest stumbling blocks with retirement is working out a budget beforehand, so you know exactly how much money you'll need to maintain your desired standard of living. That includes factoring in the essential expenses—housing, food, transportation, and health care—as well as those things that might be "extras," such as travel or purchasing your dream car.
Taking the time to calculate an accurate estimate of what you'll spend each year, as well as how many years you anticipate living in retirement, can help you pinpoint when to retire. Pull the trigger and retire too soon and you risk running out of money; put off retirement, and you may be working longer than you would like to unnecessarily.
You've Saved for Retirement in Multiple Pots
Tax-advantaged retirement accounts, such as a 401(k) or IRA, are a great way to save for the future since your earnings grow tax-deferred over time. Once you retire, withdrawals from a traditional 401(k) or IRA would be subject to ordinary income tax, but retiring before age 59.5 could mean paying a 10% early withdrawal penalty.
Diversifying your savings and investments is a must if you're hoping for early retirement. Having money you can access without triggering an early withdrawal penalty, either in a high-yield savings account, an interest-bearing checking account, a CD ladder, money market accounts, or a taxable brokerage account, can help you avoid an inflated tax bill.
It's also wise to have multiple retirement income streams if you're retiring well ahead of your 62nd birthday, which is the minimum age at which you can begin claiming Social Security benefits. Making sure you have enough income from tax-efficient sources can help ensure that you stay retired, rather than having to go back to work at some point.
You've Covered Your Insurance Gaps
Health care can easily end up being one of your biggest retirement expenses as you age. While Medicare can help with certain costs, it doesn't cover everything—including pricey long-term care—and you're not eligible for it until you reach your 65th birthday.
If you're unsure when to retire, ask yourself whether you'd be able to maintain your health insurance coverage until you become eligible for Medicare. You could pay for coverage out-of-pocket, but that can be much more expensive compared to being covered by an employer's plan. Doing without health insurance is another option, but that could get tricky if you're injured or experience a serious illness. You'd need to be sure that you have enough money in reserves to pay for any unexpected medical expenses while still maintaining your everyday living expenses.
In addition to health insurance, you may also want to look into other coverage, such as disability, life, and long-term care insurance. The younger and healthier you are when you buy these types of policies, the cheaper the premiums tend to be so if you're set on retiring early, you'd want to consider them sooner, rather than later.
Your Children Don't Rely on You Financially
If you have kids, you know how expensive they can be, and the cost doesn't always diminish as they get older. College-aged kids, for instance, may need help with living expenses, tuition, books, fees, or other costs related to their education. And once they graduate, they may still need a little help financially as they find their footing in the job market and begin living on their own.
In some cases, you may have children with special needs who can't care for themselves on their own. Evaluating how well your children would fare financially without your help is an important step in deciding when to retire.
You're In a Retirement Frame of Mind
Retiring is in large part a numbers game, but there's also a mental and emotional element. Leaving your job behind can be a big change, and you need to be sure that you're ready mentally for the adjustment that happens afterward. Think about what your plans are for early retirement and ask yourself what your goals are for retiring early. Is it simply to escape a job you don't exactly love, or is there another reason? The clearer you are on your mindset, the easier it becomes to decide when to retire for good.