Think it’s about time to call
it a career? Great. But before you say “Hasta la vista, baby!” to your job, I suggest you go over the five items in my Are You Really Ready To Retire? checklist.
Just to be clear: I’m not talking about “ready to retire” in the sense that you’ll flip out if you have to deal with your egomaniac of a boss one more day. I
mean you’re ready in the sense of being financially, socially and emotionally prepared to make the transition to your post-career life. That’s important to know because if you exit before you’re truly
prepared, you may find yourself repeating another famous Schwarzenegger line: “I’ll be back.”
1. You’ve thought seriously about how you’ll live in retirement. The planning you’ve done
throughout your work life has probably focused mostly on the financial aspects of retirement: saving, investing,
tending to your 401(k) and other retirement accounts. But now that you’re in the home stretch, you’ve also got to give some attention to lifestyle planning—that is, figuring out how you’ll live a satisfying and meaningful life when you no longer have a job to provide structure for each day.
Among the major questions you must answer: Do you plan to stay in your current digs, downsize to a new home or maybe even relocate to a new area? And do you have a solid circle of
friends and family who can provide companionship and support? (Research shows that retirees with a good network of friends were almost three times more likely to be happy than retirees who lacked such a network—as were those
who had sex more frequently.) The Ready-2-Retire tool in RDR’s Retirement Toolbox can help you sort through such lifestyle issues.
2. You’ve made a retirement budget. Assuming you’ll need 80% or so of your pre-retirement salary once you retire may be okay for planning
when you’re decades from retirement. But once you’re within 10 or so years of retiring, you need a more realistic estimate of what you’ll spend. You need a retirement budget. It doesn’t have to be
accurate to the penny. But it should be as meticulous and accurate an accounting as possible of the actual costs you’ll face. If you do your budget with an online tool like Fidelity’s Retirement
Income Planner or Vanguard’s Retirement Expenses Worksheet, you’ll more easily be able to compare your actual spending vs. projected spending and factor changes into your budget throughout
3. You’ve come up with a Social Security claiming strategy. A recent GAO
report found that even with lifespans increasing the majority of people still start taking Social Security benefits before their full retirement age. But that can be a mistake. Each year you delay
between age 62 and 70, you boost the size of your benefit roughly 7% to 8%, which can dramatically increase the amount of money you receive over your lifetime. If you’re married, you may be able to
boost the amount you and your spouse receive during your lives even more than singles by taking advantage of a variety of claiming strategies for couples. To see how much you might benefit by
delaying benefits or coordinating the timing of benefits with your spouse, check out tools like T. Rowe Price’s Social Security Benefits Evaluator and Financial Engines’ Social Security
4. You’ve created a plan for turning your savings into regular income.
After years of growing your nest egg, you now have to figure out how to tap it for income that will sustain you throughout retirement. The challenge: Pull enough from your savings each year to
provide the spending cash you need without going through your stash too soon, while also not drawing so little that you unnecessarily stint early in retirement and end up with a big pile of savings
in your dotage when you can’t enjoy it. One way to meet that challenge is to begin with a modest initial withdrawal—say, 3% to 4%—and then adjust that amount annually for inflation to maintain
purchasing power. Another option is to devote a portion of your nest egg to an immediate annuity that can supplement the guaranteed income you’ll receive from Social Security as well as
withdrawals from savings. Just know that over the course of a long retirement any number of things—market setbacks, unexpected expenses, higher-than-expected inflation—can wreak havoc with even the
best-laid retirement income plans. So stay flexible and be ready to adjust your spending as conditions require.
5. You’ve confirmed you can actually afford to retire. This, of course,
is the biggie. Do you actually have enough retirement resources to provide sufficient income to support the retirement lifestyle you envision? The only way to know is to crunch the numbers. You can
do that by going to a good retirement income calculator and plugging in such information as your age, the value of your retirement savings, how your savings is divied up among stocks, bonds and cash,
the estimated monthly income you’ll require and how long you think you’ll need that money to last. (I recommend to age 95 or at least into your early 90s.) Once you do that, the calculator will
estimate the probability that your resources will generate your target income for as long as you need it. If that probability is lower than you can live with—and I’d say anything much below 80% is
worrisome—you have several choices. You can scale back your lifestyle and spending, postpone retirement until your chances improve or consider other adjustments such as working part-time in
retirement, tapping home equity with a reverse mortgage or even relocating to an area with lower living costs. Bottom line: If you’re creative and resourceful, there are any number of ways you can
make retirement work. But you’ll have a greater shot at success if you evaluate them before you actually leave your job. Walter Updegrave is the editor