How to Know When You’re Financially Ready for Retirement

how to know when you're financially ready for retirement

As retirement approaches, it’s normal to ask yourself, “Am I financially ready to retire?” The answer is different for everyone. Many Americans estimate they will need $1.8 million to retire — reaching a precise number can be tricky, but ensuring financial readiness, stability and security is key. 

In terms of the importance of retirement planning, there are numerous factors to consider. Being financially ready to retire is a significant contributor. You’ll want a sufficient self-directed individual retirement account (IRA) or another retirement account to ensure a comfortable, secure retirement as you transition from saving to spending.

 Explore what to consider and how to prepare effectively for retirement so that you can be financially ready.

Things to Consider Before Retiring

To get prepared for retirement, it’s important to think about your current financial state, lifestyle and living circumstances, health considerations and at what age you’ll be content to retire. 

What Is the Best Age to Retire?

Overall, there is no ideal retirement age. Some people may retire before 50 while others choose to continue working for financial security or personal fulfillment.

If you require Social Security retirement benefits, use the Social Security Retirement Age Calculator to determine your full retirement age (FRA). You can start receiving benefits from age 62, but if you delay retirement until age 66 or 67 — or the maximum age of 70 — you will receive a fuller amount. 

Am I Financially Ready to Retire?

To determine whether you’re prepared to retire, it’s essential to assess financial readiness by comprehensively evaluating your assets, liabilities and anticipated income and expenses. 

You want to retire when your financial resources can comfortably sustain your desired lifestyle without reaching a point where you begin to worry about funds. To make this determination, it’s recommended to meet the following criteria:

  • You have an updated portfolio of viable retirement income streams.
  • You know your current and future income needs.
  • Your long-term budget and retirement account match.
  • You have financial safety nets and emergency funds available. 
  • You are debt-free and do not rely on credit in any form.
  • You have no dependents or others requiring your financial support.
  • You know what is taxable and what is not in retirement. 

How to Get Ready for Retirement

Embarking on the journey to retirement is a significant life transition, and with 56% of Americans saying they can’t retire, learning how to properly plan and prepare has become that much more important. You’ll want to assess expenses, determine income streams and have an actionable roadmap to ensure financial freedom and stability in retirement. 

1. Assess Retirement Expenses

Weigh your expenses first in order to plan and guide your saving goals. You can consider known and expected costs as well as those unseen, such as medical emergencies. When assessing retirement expenses, take these steps:

  • Estimate future living expenses: Consider whether your home is paid off, what your daily necessities will be and if a health savings account (HSA) in addition to your high-deductible health plan (HDHP) is right for you.
  • Account for potential inflation and rising costs: Make sure to account for how inflation will affect your IRA gains and remember that prices may continue to grow in general. 
  • Consider leisure activities and travel expenses: You’ll have more free time as a retiree, so consider the costs of your hobbies and travel plans.

2. Evaluate Retirement Income

Conduct a comprehensive assessment of all expected income streams you will have during retirement, including Social Security, pension plans, a self-directed IRA or self-directed 401(k) and other investments. It’s also important to consider the reliability and sustainability of these in the long run. To begin, you should:

  • Calculate income: Some estimates will be required, but a professional can help you determine what your pension, Social Security, 401(k), savings, IRA and other financial sources can provide.
  • Assess investment returns and portfolio performance: Keeping an eye on your investments and portfolio is key to a successful retirement. Working with a professional can help you stay on track.

3. Create a Retirement Budget

With a detailed, accurate breakdown of income and expenses, you can make well-informed decisions regarding your long-term financial health. As you budget, you may identify areas that require adjustments. When creating a retirement budget, look at current spending and contributions as well as the following factors:

create a retirement budget
  • Review expected income and expenses: Apart from how much money you will have, it’s important to consider trends such as the Consumer Price Index (CPI), which outlines the average change of prices paid over time.
  • Factor in health care and long-term care costs: Your medical expenses tend to rise with age since many retirees require more medical care, and health insurance prices tend to increase as a result.
  • Consider changes in lifestyle and spending habits: As you get older, certain expenses may lessen, such as grocery budgets. However, your lifestyle may need to adapt, and it’s a good idea to have a plan for how you wish to spend your retirement, then budget accordingly.

4. Evaluate Financial Reserves and Safety Nets

Building up financial reserves is essential to fortifying your safety net in the event of economic, medical or other emergencies. These emergency funds should have designated purposes and act as insurance policies. When preparing and evaluating your safety net, take the following steps:

  • Build an emergency fund: If you have savings and a retirement portfolio in place but not an emergency fund, consider starting one as early as possible.
  • Assess insurance coverage: Before retiring, acquire adequate health, property and long-term care insurance and thoroughly inspect your coverage to avoid unexpected expenses later on.

5. Consult With a Financial Professional

It’s a smart idea to seek advice from financial professionals who can provide valuable suggestions and insights into the legal aspects of retirement. A retirement account planner can help optimize and rebalance your portfolio, address tax considerations, inform you of all legal requirements and provide personal strategies for your retirement planning.

Speaking with an expert can help ensure you remain compliant with the IRS code and rules for IRAs. They can also help create actionable plans for recessions and other financial threats. If you have an IRA, a financial professional can review investment and asset allocation strategies with you and discuss how to manage your assets now and in the future.

Prepare for Retirement With Accuplan Benefits Services

create an account today and start preparing

The sooner you begin retirement planning, the more time you have to explore unique investment options for your self-directed IRA. Diversify your portfolio and take control of your retirement savings and revenue streams with help from Accuplan.

At Accuplan, our dedicated experts have years of experience offering knowledge-driven retirement account expertise and insights. Create an account today and start preparing for retirement your way. To learn more about our offerings and expertise, contact us online.

Our information shouldn’t be relied upon for investment advice but simply for information and educational purposes only. It is not intended to provide, nor should it be relied upon for accounting, legal, tax or investment advice.

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