How to Tell Whether It's Time to Retire
Deciding when to retire is one of the most difficult career decisions a worker can make. Employees are often earning their maximum income at the point of retirement, so the financial implications of retiring too early can be profound.
Careful planning about the transition from full-time employment to retirement can enhance your chances of making a smooth adjustment. There are many elements to consider before making a final decision.
Do You Want to Retire or Do You Want to Quit?
Don't confuse an unsatisfying job situation with an imperative to retire. Ask yourself if you would still retire if you were carrying out your job duties in a better work environment.
Employees who are working in a job that is not a good match for their skills, values, and interests are more likely to rush a retirement. Make sure you wouldn't be happier with a career change, rather than retirement. If you have any doubts, consult a career counselor and see if you come up with any inspiring alternatives.
Make Sure You Can Afford It
Once you're retired, you'll want to stay retired, so ensure you have enough money saved up to meet your needs. Track your expenses so that you have a realistic handle on how much income you will need to sustain your preferred lifestyle. Fidelity recommends saving at least eight times your salary by age 60 and 10 times your salary by age 67. If your savings are in that ballpark, you could be in good financial shape to retire.
Factor in changes that you could reasonably anticipate after retirement. For example, you would no longer be shelling out money for work clothes or commuting costs but you might spend more on vacations, entertainment, and dining out.
Meet With a Financial Planner
Consult a financial planner for additional insights into whether you have the money you'll need to retire. The Social Security Administration can also help you estimate your retirement benefits, either online or at your local office. Reach out to representatives from your pension or 401(k) plans to identify your income potential from those sources.
Social Security benefit estimates should be taken with a grain of salt. As the Social Security Administration's benefits estimator notes, "The law governing benefits amounts may change because, by 2035, the combined trust fund reserves are projected to become depleted."
Ease Into Retirement
If you need to generate some income or would prefer to continue with some employment to keep busy, you could talk to your boss about reducing your hours at work. Scaling back by a handful of hours at a time provides a way to ease into retirement without any sudden changes to your lifestyle or budget. Your employer might also consider retaining you in another role, such as a consultant.
Investigate Health Insurance
If you aren't yet old enough for Medicare, consider your options for health insurance coverage and know the costs. Meet with a member of the human resources staff of your current employer so that you are fully aware of any post-retirement benefits offered and the implications for your transition.
Don't count on Medicare to cover all your medical expenses after you retire. Fidelity estimates that about 15% of the average retiree's annual expenses will be related to health care, including Medicare premiums. Fidelity also estimates the average couple who are now 65 will need $285,000 to cover medical costs in retirement—and that doesn't include long-term care.
Talk to Your Spouse
You may have decided you're ready to retire and you already know what you'd like to do once you're done working, but is your spouse on the same page? Make sure your retirement goals and expectations are in sync.
Well before your last day at work, you and your spouse should have already decided on financial details such as whether pension payments will be a lump sum, single-life, or joint-life. If your spouse works, do they plan on retiring at the same time as you?
Do a Test Run, If Possible
Perhaps the best way to prepare for retirement is to do a trial run. Test out some of your planned retirement pursuits while taking some time off. Do some consulting as a side gig and see if you could turn it into a post-retirement source of income. Volunteer with an organization you care about and think about whether it could be a satisfying retirement hobby.