If you’re getting close to the finish line in your career, you’ve probably spent some time daydreaming about the things you’ll do when you don’t have to spend your weekdays in the office. It can be fun to daydream about retirement, but if you want to make sure that you can live out those daydreams it’s important to spend some time planning and making sure that you and your spouse are really ready to leave the workforce for good.
So, how do you know if you’re ready to retire? Here are five things to consider:
1. Do you have any debt? You probably already know that I’m a big believer in living debt-free. High-interest credit card debt can be detrimental to any household, but it can be especially hard to deal with debt when you’re living on a fixed income. If you want to retire comfortably, make a plan to start paying off your credit-card debt. Need a few ideas for debt-repayment strategies? Consider the snowball method or the “10 Percent” method, which I discuss in more detail in this post.
2. Where – and how – do you want to live? Chances are, you and your spouse have talked about retirement, and you probably have a vague picture of your ideal retirement lifestyle. Do you dream of selling your home and moving to a low-maintenance condo near the grandkids? Would you prefer to hop into an RV and travel the country? Are you planning to “age in place” in your current home? Another item to consider is, how do you plan to spend your time? Some retirees are content to relax and indulge in favorite hobbies, like reading or gardening. Others crave structure and feel most fulfilled doing volunteer work or taking classes.
3. Have you created a retirement budget? When you retire, your spending patterns will definitely change. Notice that I didn’t say “decrease” – it’s a common misconception that retired folks always spend less than working people, but that’s not always the case. In most cases, when people retire, they spend around the same amount of money as they did when they were working, but they spend it on different things. For example, when you retire, you won’t need to purchase work-related clothing, transportation to the office, and workday lunches. But you might increase your spending on things like travel, home improvement, or a new hobby. That’s why it’s a good idea to sit down with your spouse and create a budget that reflects your new lifestyle.
Your retirement budget should also include an emergency fund, which leads to the next item on our list . . .
4. Do you have an emergency fund? An emergency fund is an essential part of any budget, and it’s a critical part of a retirement budget. When you stop working, you will be living on a fixed income made up of some combination of savings, investments, retirement plans, and Social Security. Creating a budget can help you make sure that you aren’t spending too much on day-to-day items and living expenses – but you should also make sure that you have funds stashed away to cover large, unexpected expenses, such as home repairs, family emergencies, or medical bills.
5. Are you mentally and emotionally ready for retirement? Sure, the majority of your retirement planning is going to be focused on finances – but you can’t ignore the fact that there are other aspects to retirement, too. Retirement is a major life change, and it’s important for you and your spouse to prepare for an adjustment period. How will you keep busy when you aren’t working? How will your day-to-day lives change? How will you adjust to being at home together full-time? Have you planned ways to ensure that you both get in some quality “alone time” once you leave the workforce? Thinking about these things ahead of time can help ensure a smooth transition to retired life.
Once you’ve answered these questions, you should have a pretty good idea of your retirement readiness. With a little planning and budgeting, you can get on the road to a happy, financially secure retirement.
Enjoy it – you’ve earned it!