Careful planning about the transition from full-time employment to retirement can enhance your chances of making a smooth adjustment. There are many elements to consider before making a final decision. Before you decide to retire, consider your:
Job satisfactionPhysical/mental ability to workFinancial stabilityHealth care coverageLife satisfaction
Job Satisfaction
Don’t confuse an unsatisfying job situation with an imperative to retire. Employees who are working in a job that is not a good match for their skills, values, and interests are more likely to rush a retirement. Retiring too early can have serious financial consequences, especially if you are not yet eligible for Medicare or Social Security. If you are younger than you expected to be at retirement age, ask yourself:
Are you ready to stop working entirely, or ready to stop your current job?Would you still retire if you were in a better work environment?Would you be happier with a career change rather than retirement?
If you have any doubts, consider working with a career counselor or exploring other job opportunities in your field. You may find that a career change is a better choice for you than retiring at this time. You may also discover that your lack of satisfaction with working has nothing to do with the job itself and more to do with your readiness to stop working entirely. If that’s the case, it may be time to start considering retirement.
Physical and Mental Ability To Work
Some physically demanding jobs, such as working in construction, are difficult to continue past a certain age. Even if you prefer to keep working, you may find yourself running into physical difficulties performing your work. If you experience cognitive difficulties, or if such health problems run in your family, you may also find yourself considering retirement earlier than you might otherwise want to. If you are concerned about your physical or mental ability to perform your job, talk to your doctor about your concerns. They may be able to give you a projected timeline for how much longer you can expect to keep working. If you anticipate having to retire early due to your health or physical ability, start planning early for how you will handle your finances and health care during retirement.
Financial Stability
Once you’re retired, you’ll likely want to stay retired. That means you’ll need to have enough money saved up to meet your needs. Track your expenses to get a realistic handle on how much income you’ll need to sustain your preferred lifestyle. Some good benchmarks to consider include:
Save at least eight times your salary by age 60.Save at least 10 times your salary by age 67.
If your savings are in that ballpark, you could be in good financial shape to retire. In addition to tracking your current expenses, you’ll need to factor in changes you could reasonably anticipate after retirement. For example, you would no longer be spending on work clothes or commuting costs, but you might spend more on travel, entertainment, dining out, hobbies, and health care.
Whether pension payments will be a lump sum, single-life, or joint-life Whether your spouse will retire at the same time as you When you will both start taking Social Security When you will start taking distributions from a 401(k), IRA, pension, or other retirement plan
Consult a financial planner for insight into whether you have the money you’ll need to retire. The Social Security Administration can also help you estimate your retirement benefits. Reach out to representatives from your pension or 401(k) plans to identify your income potential from those sources.
Health Care Coverage
No matter how healthy you are when you stop working, at some point in your retirement, your health care needs will increase. Planning for your health care costs is a key aspect of planning for retirement. For many retirees, health care costs account for the greatest portion of their budget. The average couple who is now 65 will need $295,000 to cover medical costs in retirement—and that doesn’t include long-term care. If you aren’t yet old enough for Medicare, consider your options for health insurance coverage and know the costs. Meet with a member of the human resources staff of your current employer so you will be fully aware of any post-retirement health benefits offered. Even once you are eligible for Medicare, it might not cover all of your medical expenses after you retire. About 14% of the average retiree’s annual expenses will be related to health care, including Medicare premiums. Be sure you have a plan for covering the costs of:
Health insurance premiumsRegular preventive carePrescription drugsSurgery and other proceduresLong-term care or nursing help
Life Satisfaction
In addition to the logistical aspects of retirement, you also need to consider the emotional and personal fallout. While many retirees enjoy the freedom to travel, visit family, and explore hobbies after they leave the workforce, others experience a lack of direction, boredom, and loss of life satisfaction. If you want to make sure you are prepared for retirement, consider doing a trial run while taking some time off from work, such as:
Exploring some of your planned pursuits or hobbiesDoing some consulting as a side gigVolunteering with an organization you care about
Many retirees also start with a “soft” retirement, in which they scale back from full-time work but don’t leave the workforce entirely. If you need to generate some income or would prefer to continue with some employment to keep busy, talk to your boss about reducing your hours at work. Scaling back from work a handful of hours at a time provides a way to ease into retirement without any sudden changes to your lifestyle or budget. Your employer might also consider retaining you in another role, such as a consultant.
