Here are some questions to ask yourself when deciding whether or not you are ready to retire.
Is your nest egg adequate?
It’s obvious, but the earlier you retire, the less time you’ll have to save, and the more years you’ll be living off of your retirement savings. The average American can expect to live past age 78. However, unless you are in poor health, you should plan on living to 95 or beyond, just to make sure you don’t run out of money. With future medical breakthroughs likely, assume that life expectancy will continue to increase. Think in terms of funding 30 years, not just 20 years of retirement.
When will you begin receiving Social Security benefits?
You can begin receiving Social Security retirement benefits as early as age 62. However, your benefit may be 25% less than if you waited until full retirement age, 66 to 67, depending on the year you were born. And waiting until age 70 will add another 30% to your benefits.
How will retirement affect your IRAs and employer retirement plans?
The longer you delay retirement, the longer you can build up tax-deferred funds in your IRAs, but remember that you need compensation from employment to contribute to an IRA. You’ll also have a longer period of time to contribute to employer sponsored plans, like 401(k)s—and to receive any employer match or other contributions. (If you retire early, you may forfeit any employer contributions in which you’re not yet fully vested.)
Will you need health insurance?
Keep in mind that Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early? If not, you may have to look into COBRA or a private individual policy, both of which could be an expensive proposition.
Is phasing into retirement right for you?
Retirement need not be an all-or-nothing affair. If you’re not quite ready, financially or psychologically, for full retirement, consider downshifting from full-time to part-time employment. This will allow you to retain a source of income and remain active and productive.