Can you afford to retire? Here are three critical questions you need to ask yourself before retiring
As you put more years in your career behind you, you might start feeling like it is time to retire. However, wanting to retire versus being ready to retire are two different things. If you do not have a plan in place for a smooth transition from being employed to being retired, you may have a difficult time in your retirement.
Here are some critical questions you should ask yourself in advance to prepare for retirement:
1. How much debt do I have?
It is not a requirement to be debt-free before retiring, but it makes things a lot easier. Bringing a lot of debt into your retirement can quickly eat into your savings. You should make it a priority to pay off as many of your debts as possible before retiring, including:
- Credit card debt
- Car loans
- Student loans
- Home mortgage
2. Can I afford to pay my bills right now?
If you are struggling to pay your current bills, then it is going to be just as difficult, if not more so, to pay your bills once you are retired.
Once you are retired, your income is supplemented by your savings and limited to the returns generated by your investment into your retirement plan. As a general guideline, you should not draw down more than 4% of your total retirement savings per year. If that sounds like it will be a stretch for your savings, you have some options.
First, you can increase the amount you are currently saving. Even small weekly or monthly amounts can add up over time. Next, maximize the amount you can put into tax deductible plans like a 401k, IRA, etc. This means that Uncle Sam is helping you save by reducing your taxes. If you can handle more volatility, your portfolio could be structured for more aggressive growth. Finally, you can create a savings ladder.
For example, you might want to invest in government or corporate bonds. A bond is an investment you make in an organization in exchange for interest payments at regular time intervals. Keep in mind that, all other things equal, the higher the interest rate the greater the risk. The face value is paid back to you at the maturity date and is then available for reinvestment. Staggering the maturities of the bonds can be a useful way to generate returns on your investment in regular intervals.
3. Do I have a strategy to continue to earn income after retirement?
If you’re able to save up enough for a sizable nest egg that you can comfortably live off of 4% during your retirement, you will likely be set up for success. However, some years can be harder than others. The stock market might be volatile, or inflation might affect the limits of your funds. Personal events in life, like medical issues, might lead to the need for more funds in a given period. It is crucial to have a strategy in place to be ready to face challenges like these. This is one reason why even in retirement you need an emergency and opportunity fund.
You can supplement your retirement income once you are already retired by making smart investments. We previously mentioned investing in bonds, but you can look into other options, such as dividend paying stocks and immediate annuities. Immediate annuities are investments with an insurance company that generates you a guaranteed regular income in exchange for a lump sum of money. This predictable flow of money should help bring some peace of mind especially during volatile times in the stock and bond markets.
Plan for your retirement with the help of a ProVise financial advisor
Do you feel like you are ready to retire but are not sure if this is the best time? You should talk to one of our CERTIFIED FINANCIAL PLANNER™ professionals to help you make the right retirement decisions. Our ProVise Management Group financial advisors can examine your current economic circumstances and review your financial goals to help you come up with a retirement strategy for both transitioning into retirement and enjoying your retired life.
We create personalized plans for each client at a fiduciary standard of care. We also offer an unconditional money-back guarantee if you are unhappy with your written plan. Simply return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about preparing for and enjoying your retirement? Contact ProVise today to schedule a complimentary consultation.