How To Determine If You’re Ready For Retirement
Setting aside money for retirement is an important part of any individual’s financial plan. But unless you have a clear idea of when you want to retire and how much money you will need to live off in retirement, it is difficult to tell if you are retirement ready. In this article, we look at some factors to evaluate when determining if you are ready for retirement.
When Do You Plan to Retire?
Selecting a date for retirement, even if you change it at a later time, is important to getting ready for retirement because it helps sharpen your focus on the goal. When you have a date specified it makes it much easier to figure out how much you should be saving on a regular basis to meet your retirement goal. A certain amount of flexibility is required when setting a retirement date, as factors such as your investment performance or changes to your overall financial circumstances can require this date to be altered.
What Type of Standard of Living Do You Expect in Retirement?
One rule of thumb is that you will need from 70-80% of your pre-retirement income to maintain a similar lifestyle in retirement. Of course, the actual number will vary widely from individual to individual. To estimate what type of income you will require in retirement, consider what type of standard of living you would like to pursue. Do you plan to take many expensive vacations? Will you downsize your residence to free up funds for retirement? What will your expected level of expenses be for things such as food and shelter? Answering all these questions will help you come up with an estimation of how much money you will need in retirement. This number, in turn, will help you figure out how much money you need to have saved by the time you reach retirement.
What Strategy Will You Use to Claim Social Security?
A variety of rules govern how and when you can start receiving Social Security payments. You can start taking payments at age 62, but the longer you wait to take them the greater the monthly payment you will receive up to your full retirement age (FRA), which is typically 70 years. Deciding when to claim benefits can be a complex undertaking, and should involve extensive planning or consultation with a financial advisor who understands the program well.
Have You Taken Inflation into Account?
$1 today is unlikely to buy the same $1 of goods 3 years from now, much less 20 or 30 years from now. Because of this, it is essential to take inflation into account when planning for retirement. When calculating your retirement income needs, adjust your expected requirements in today’s dollars to reflect inflation between today and the point in time when you expect to retire.
Planning for retirement is one of the most important, if not the most important, financial tasks a person will undertake. Answering each of the above questions can help you evaluate your readiness for retirement and identify the steps necessary to get yourself ready if you are not currently on track to meet your retirement savings objectives.
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Samuel Rad is an award winning fee-based Financial Planner with Affluencer Financial Advisors in Los Angeles, California. Mr. Rad has multiple licenses in the investments, real estate and insurance fields. He has spent a considerable amount of his career lecturing at universities and companies, on financial topics such as financial planning, retirement planning, and estate planning.
He currently lectures at UCLA and West Los Angeles College.