October 2, 2012 — Remember when you were in your 30’s or 40’s and some guy at a party would ask people “What their number was?” As in, how much money do they have to have stashed away before they could take their job and shove it. Those days might seem pretty far away now, as our natural dates for retirement get closer and closer. This article will ask you some questions to help you determine if this is the right time for you to retire.
Retirement is a big step. Once retired, it is hard to reverse that decision, particularly getting back into the workforce. Our previous surveys at Topretirements indicate that there are a significant number of people who feel they retired too early. We urge you to be sure you are ready before you take the plunge. To help you with your decision we have prepared this quiz. Keep track of how many Yes and No answers you have and at the end we will provide you with an informal, non-scientific score.
1. Do you wish you didn’t have to go to work in the morning? __YES ___NO
A Yes answer provides a pretty good reason to retire. But that doesn’t necessarily mean there isn’t another job or line of work you might enjoy. And if you love what you do, why would you want to stop?
2. Is your spouse or significant other supportive of you retiring? __YES ___NO __NA
If your spouse seems against or isn’t supportive about you retiring now, pay attention to what those concerns are. They might just realize something you don’t.
3. Have you developed some strong interests, hobbies, or friendships outside of work? __YES ___NO
Our suggestion: Get started now with some hobbies or interests. You will be happier if you have some ideas and experience with how to stay busy, before you cut the cord.
4. Are you fully vested in a substantial defined benefit pension? __YES ___NO
Not that many people have a defined benefit pension anymore (a promised amount you will get, regardless of what you have contributed). But if you are among the fortunate and disappearing few that do have such a pension, you are sitting on a figurative gold mine. To make the most of this benefit, however, you don’t want to retire before you are fully vested. If you do, you might be leaving significant dollars on the table. Your accountant or financial advisor can calculate the present value of your pension for you. Here is one simple illustration (the present value would be less): a yearly pension of $25,000 collected for 25 years is equivalent to a lump sum payment of $375,000 – a lot more than most people have saved for retirement.
5. Does your post-retirement income (including pension, social security, IRA withdrawals, part time work, retirement savings, and investment income) amount to at least 80% of your current income?
This is the biggie, because if you don’t have enough money to live comfortably, it will be hard to be happy. Our survey respondents indicate that having enough money is very important to a successful retirement. Most people can live on a bit less after they stop working, but most of your big expenses will continue. Medical expenses are likely to be higher than they were during your working days.
It is fairly easy to calculate how much your social security and pension will generate (see For Further References below), but figuring out what your investments will provide is more complex. One common rule of thumb is that you can safely pull out 3-4% or your total each year and not run out of money.
6. Are you at least 66 years or older, or can you live without collecting Social Security until then? __YES ___NO
This question has to do with maximizing your social security benefit. If you have an average life expectancy and take your SS benefit before age 66 you are definitely giving up a significant benefit for you and your surviving spouse. Better yet, for each year you delay claiming between age 66 and 70, your benefit will increase 8%, plus COLA. So if you can delay claiming, either by working longer or by using other savings to live on, you will be much better off.
7. Are you 65 or older, or will you have company paid health insurance after you retire? __YES ___NO
Many people severely underestimate how much it costs to provide their own health insurance until you reach 65 years of age and Medicare kicks in. A husband and wife can easily pay $1,000/month in premiums, plus have a $5,000-$10,000 deductible. Expensive drugs and dental care can add onto that. So there is big incentive to wait until you are 65.
8. Have you developed a plan for how you are going to keep you busy every day? __YES ___NO
Not having enough to do was a highly rated choice on our recent survey of the best and worst things about your retirements. If you don’t have a hobby, sport, or interest – we suggest you find one before you retire. Most people would agree that busy people are happy people!
9. Do you know where you would like to live when you retire? __YES ___NO
It is not essential that you know where you are going to live once you retire, but it does help to have thought about it. Even if you decide to stay right where you are now, make that a conscious decision rather than something that just happened.
10. Is your debt for credit card, education, or mortgage paid off? __YES ___NO
Trying to pay off debts with a reduced income is asking for trouble. If are still paying on a mortgage or other loan, try to get it paid off before you retire.
We will be the first to admit this is a non-scientific quiz. But we feel you should examine your answers carefully – retirement is a big deal and a second chance on life. So here’s what we think:
All Yes answers – Congrats, you are ready to retire. Good luck!
1- 2 No answers – You will probably be OK , but think twice about what your No answers were. Obviously, some questions are more important than others (for example, a No on Question 4 or Q 6 is of no consequence if you answered Yes to Q 5. But, if you answered No to question 5 (post-retirement income), that answer alone is a good reason to stay working. If you don’t have enough money your chances of a successful retirement are severely impaired.
3-4 No answers – We strongly suggest you consider postponing retirement until you have had a chance to work on your outstanding issues.
5 or more No’s – Retire at your own risk!
We hope that you find this quiz useful in your retirement preparations. Please add your suggestions and reactions in the Comments section below!
For further reference:
New Retirees: Avoid These Mistakes
Top 8 Financial Risks You Face in Retirement
Unexpected Expenses in Retirement
Social Security’s Retirement Benefit Estimator
What You Think You Know About Social Security Might Hurt You