What’s your retirement trigger point? When you hit a certain age? On the day your portfolio hits a benchmark value? Before you have to book your annual February sales trip to Minnesota?
If your hypothetical last day is starting to peek over the time horizon, it’s time to start thinking about whether you will be well and truly ready to retire on that day. This exercise is especially important if your timing is savings-driven. The size of your nest egg is a critical factor in deciding when to leave your career behind, but it’s not the only important consideration.
I tell my clients that an effective retirement plan requires attention to MASH – Money, Adventure, Social, Health. If you have the money, it’s time to start thinking about how you will spend your time (Adventure); how you will maintain personal relationships (Social) and how you will maintain your wellness (Health).
With MASH in mind, here are some things to factor as you ponder whether to pull the retirement trigger:
Do You Have a Vision? The happiest retirees thought a lot about post-career life during their working years. They shaped (and reshaped) a vision for how they wanted to spend their hard-won freedom. Lots of travel? Homebodies at the beach house? Volunteer work? Helping with the grandkids? Every retirement vision looks a little different, and that’s OK. What’s not OK is heading into the golden years with no sense of direction. That can lead to dissatisfaction as the joy of being alarm clock-free turns to the tedium and social isolation of “What do you want to do today? I don’t know, what do you want to do today?”
Have You Calculated Your Financial Needs? Once you have a vision for your retirement, you can get a good sense of how much money you need each month to live as you wish. That figure should include your daily living expenses and the money you expect to spend on your “core pursuits,” those hobbies and passions that bring you joy.
If you take that monthly expenditure number and subtract your monthly income from Social Security, pensions and/or part-time work, you will be left with the amount that your nest egg must supply each month. That number may influence your decision, prompting you to perhaps retire earlier or work a bit longer.
Are You Debt-Free? Entering retirement with significant debt is like leaving the harbor under full sail while dragging an anchor. Imagine the irritation you feel when making a MasterCard payment out of your life’s savings. And, yes, a mortgage is “bad debt” in this situation. Research done for my book You Can Retire Sooner Than You Think found that the happiest retirees had either paid off their mortgages or were within five years of doing so.
Have You Saved for Retirement in Multiple Pots? This is an important question if you plan to retire early. Remember that making a withdrawal from your 401K or IRA before age 59 1/2 could result in a 10% early withdrawal penalty. Placing some of your savings in a brokerage account or money market account will allow you penalty-free access to your money.
It’s also a good idea to have some non-investment retirement income streams. This money – from a part-time job, consulting fees or real estate rents, for example– can help support you before you hit 59 ½ and help reduce the pressure on your retirement accounts over the long haul.
Do You Have Insurance? Health care can be one of your biggest retirement expenses, especially as you age. Medicare doesn’t cover everything. Long-term care, for example, is not covered. Remember would-be early retirees, you’re not eligible for Medicare until age 65th.
You can pay for coverage out of pocket, but such a policy will likely be costly compared to what you paid for your employer-sponsored plan. Going without insurance is another option, but a dicey one. That route requires you to keep enough money in reserve to pay for unexpected medicals expenses.
Other coverage you might want to consider include disability, life, and long-term care insurance. These policies tend to get more expensive as you age, so shop early!
Are Your Children Financially Independent? A huge percentage of retired adults admit they are still providing significant monetary support to one or more adult children. While it’s absolutely beautiful to help your kids, too much dependence can jeopardize your retirement happiness and security by draining your nest egg. If you are doing things like paying off your 30-something kid’s credit card debt or footing the bill for an elite pre-school for a grandkid, you might need to have a serious conversation with your offspring about weaning them off your wallet before you retire.
If you answered yes to these questions, you may indeed be ready to retire. At the very least you have set the stage for a happy and fulfilling retirement whenever you do pull that trigger.