Are You Ready to Retire? 4 Questions to Consider

“I have accumulated a comfortable nest egg. But am I ready to retire or should I continue working?”

This is an increasingly common question many professionals ask themselves as they approach retirement. After spending decades working diligently and saving every dollar possible, transitioning to a lifestyle that relies on taking money out of savings accounts to pay expenses can be scary to navigate. Even if you believe you have sufficient savings, how can you be sure you are ready to hang your proverbial hat? Here are four questions to consider:

1. How much money will you need to spend in retirement?

First, take time to closely review your current spending needs and consider what monthly income will be required to maintain your current lifestyle. This is the most important number to clarify in preparation for a transition into retirement and should not be estimated based on an online calculator or published rule of thumb. Instead, this calculation will be unique to your household and your specific way of living. Entering retirement without clarity on this figure is like hopping on an airplane without knowing its destination.

Commonly offered bank account or credit card spending analysis tools or specialized budgeting services can help set you on a trajectory toward a successful retirement. It is also critical to factor in any benefits you receive through your employer that you may need to pay out of pocket during retirement, such as health care premiums.

2. Where will your income flow from and how might it change over time?

For most individuals, income will flow throughout retirement from a combination of sources such as Social Security, pensions and withdrawals from various savings accounts. While making plans for an income stream in the first year of retirement may be a straightforward process, the relationship between each one will likely change over time. For example, for many retirees it is beneficial to defer Social Security until age 70 while taking larger distributions from investment savings in the short term. After age 70, your portfolio withdrawals may decrease for a few years until you must begin taking required minimum distributions (compulsory withdrawals from tax-deferred accounts such as 401(k)s and IRAs).

It is critically important to craft a long-term plan around these income streams and proactively consider their different tax implications, as well as the probability that they will keep up with inflation throughout retirement.

3. Are your investments structured to weather a multi-decade retirement?

While the achievement of reaching retirement is a milestone worth celebrating, it does not signal the end of the work required to maintain a well-balanced investment mix. This means balancing your short-term needs, such as dollars that may be withdrawn from investments for spending in the next one to two years, against the need for long-term growth. Making sure you have savings that will grow to keep up with – and hopefully surpass – inflation is an ongoing exercise throughout retirement. Even if you do not take withdrawals from your accounts annually, the investment selections should be regularly reviewed.

It is also common for some retirees to reach a crossroad in which their goals may shift toward a possible financial legacy for the next generation or charitable organizations, which can also lead to a significant shift in investment strategy.

4. What will a “day in the life” of retirement look like?

This might seem like the easiest question of the bunch, but I’d argue that it might be the hardest to answer honestly. Many books have been written about the need to have a plan around what one is retiring to rather than simply what one is retiring from. While many flourish in retirement and frequently comment that “they don’t know how they ever had time to work” due to a thriving schedule, others find themselves floundering in front of the TV or computer without direction or purpose, leading to depression and malaise.

It is worth considering the true motivations behind a desire to retire and begin making even hypothetical plans around what a typical day of retirement might entail. Taking a moment to reflect on whether the retirement compass is fully calibrated and pointing in an exciting direction or is lacking a true signal may save an early retiree a lot of pain and heartache.

Each of these trail markers are critical points at which to stop along the way to a retirement decision and should be considered with due attention and care. Working with an advisor that specializes in holistic long-term planning can help you chart a seamless plan throughout retirement to ensure your spending needs are achieved, your taxes are minimized, your investments are well balanced and your future is bound for abundant adventure.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information. R-24-7255

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