Are you ready to retire? It’s a question you need to ask yourself as you get closer to retirement age, and the answer can drastically alter how your later years pan out. However, it’s not as easy as merely deciding you’re ready to retire at the drop of a hat; major life decisions take time and preparation before you can do them. How are you supposed to know if you’re not financially ready to retire?
You struggle to pay your current bills
If you’re struggling to pay your bills while having a job, you will not get much better when you no longer have one. To have a comfortable retirement, retirees need about 75% of their previous income. This usually comes from pensions, social security, IRAs, 401(k)s, and whatever savings you may have built up over the years. Retiring doesn’t mean that the bills stop coming, especially when it comes to taxable income and healthcare costs. If you struggle to pay all of this now, chances are you’ll continue to do so once you no longer work.
You have a high amount of debt
In addition to taxes and bills, having a large amount of debt will put a considerable strain on your retirement funds. Paying off any debts before retirement will help cut costs, even if you may be working longer than you hoped you would be. When deciding whether to put your money toward your debt or your retirement fund, consider this general rule: if your interest rate is high (around 6-8%), put the money toward your debt. Likewise, if you have a lower interest rate, put money into your savings account.
You have no financial plan
This goes for both long-term plans and monthly plans. Having a solid grasp on your expenses will determine how much you need per month to live comfortably while having a long-term plan extending your portfolio out as long as your retirement years need. The general long-term rule is allowing yourself to tap into 4% of your portfolio each year, though with investment returns being lower than they used to be, that rate has dropped to 2.8%. Limiting how much you withdraw will keep you from running out of funding prematurely.