Thinking about retiring in the next year? If so, this is an exciting time. After a career that has likely spanned decades, you can now look forward to the next chapter of your life.
While you’re probably excited to retire, it’s important that you don’t make the leap too early. It’s not uncommon for retirees to realize that they weren’t quite ready to leave the working world. The result is that they return to work in some capacity.
You can avoid that outcome by making sure you’re fully prepared before you pull the trigger on retirement. Before are four financial milestones that could indicate you’re ready for retirement. This list isn’t comprehensive, but if you meet these four major markers, retirement may be in your near future.
You have a retirement budget.
A budget is always a valuable financial tool, but it’s especially important in retirement. A budget helps you control your spending and make sure you’re on-track to hit your financial goals. Without a retirement budget, it can be easy to fill your newfound free time with costly activities like travel, dining, and shopping. If you spend too much in the early years of retirement, you may not have enough assets left in the later years.
Unfortunately, many Americans don’t regularly use a budget. In fact, according to a 2019 poll from Debt.com, nearly a third of all households don’t use a budget.1 If you’re among that group, now may be the time to start using one. A budget could be the key that helps you maintain your assets and your income through a long retirement.
You have an emergency fund.
Emergencies happen. There is always the potential for a home repair, costly medical procedure, or other unplanned expense. As you get older, the possibility of a costly medical bill may be even more likely. While Medicare may cover most of your care, it doesn’t cover everything. In fact, Fidelity predicts that the average 65-year-old couple will spend $295,000 out-of-pocket on health care in retirement.2
An emergency fund can help you handle medical costs, home repairs, or any emergency bill that may pop up. When you’re working, it’s often advised to have a few months worth of living expenses in an emergency fund. However, in retirement you may want to plan for a longer period of time. After all, you no longer have a salary to replenish the emergency fund.
You have little revolving debt.
For many of us, debt is a fact of life. From mortgages to car payments to student loans and credit cards, debt is often a necessity. As you reach retirement though, debt can be a serious financial burden. Every dollar you spend servicing debt is a dollar that isn’t used to cover living expenses or to grow your assets. Debt could force you to drain your retirement assets more quickly.
If you have significant levels of debt, especially high-interest credit card debt, you may want to rethink retiring soon. Develop a plan to tackle that debt and free up cash flow. A financial professional can help you implement a strategy.
You have a retirement income plan.
Finally, perhaps the most important question to answer is where your income will come from in retirement. You’ll likely receive Social Security benefits, and you also may have retirement savings in a 401(k) or IRA. Perhaps you also have a pension, annuity, or other source of income.
A retirement income plan maps out exactly how your income will be generated and how much income will come from each source. A financial professional can help you develop a plan that protects your assets and maximizes your income. They also may be able to help you generate income that is guaranteed for life, no matter how the market performs or how long you live.
Think you’re ready to retire? Let’s talk about it. We can help you analyze your needs, goals, and concerns and implement a strategy. Contact us at Caprock Financial Group today and let’s start the conversation about your next chapter.
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*Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. 20416 – 2020/9/17