It is time to retire? Ask yourself these questions if you’re trying to decide.
I’ve been sharing my retirement story online for several years now. However, I’ve never shared the list of questions that I asked myself as I was considering early retirement.
It’s been five years since I formally announced my intent to retire from the university at the age of 55. Looking back, I can tell you that, for me, retirement was a good decision. But it was also one that required a great deal of thought, planning and consideration.
If you’re trying to decide if it’s time to retire, then take a look at the questions that guided my decision. And if you’re just curious about why I decided to retire early then feel free to read on as well.
NOTE: Please keep in mind that I am not a retirement planner or offering professional advice, this is simply a personal lookback at my experience.
Is it Time to Retire: Two Primary Questions to Ask Yourself
The retirement decision is a two-edged sword with each demanding equal consideration. First, can you financially afford to retire? That’s the topic of today’s post in Part 1 of Is it Time to Retire?
And second, are you actually ready for retired life? Check back for my thoughts in Part 2 of Is it Time to Retire?
Financially, is it time to retire?
The amount an individual or a couple needs for retirement varies significantly depending upon a variety of factors. Some of these factors include: spending habits, financial responsibilities, the type of retirement envisioned, etc.
So if you’re looking for a specific amount that you need to retire, then you’re not going to find a magic “one fits all” answer in today’s post. It’s not that simple!
But you can figure out to the best of your ability (with a little professional guidance) if you are financially ready to retire. Here’s how we approached the financial side of deciding to retire.
How we knew it was time to retire, financially
Bill, my spouse, and I spent lots of evenings and car rides talking about retirement. Our car ride chats eventually turned into years of planning and putting pencil and paper to the test before we finally knew we were prepared to take the retirement leap.
We ended up taking a three-phase approach to the question of is it time to retire, finanacially.
- First, we considered a few big questions impacting how we wanted to approach our retirement finances;
- Second, we created a household budget for retirement including our projected retirement income and expenses; and,
- Third, we worked with a financial advisor to see if the numbers added up to a financially successful retirement.
1. A few big questions impacting our approach to retirement finances:
Rather than starting with the nitty gritty of our finances, Bill and started with the big picture. Specifically, what was important to each of us in retirement related to our finances.
Below are the five big picture questions that have largely influenced our financial approach to retirement. You can use them as a starting point but will want to personalize the questions for your situation.
A Few Over-Arching Questions to Consider
- Is it important to you to be mortgage free in retirement? Before retiring, it was important to both of us that our mortgage was paid off. Some argue that financially this isn’t a good decision especially when you have a low interest rate on your mortgage. However, we wanted to own our home, mortgage-free, before joining the retirement ranks. It gave each of us peace of mind.
- Are you comfortable having debt in retirement? We had been living debt free for years (with the exception of our home) and agreed to enter retirement debt free. We also agreed to approach our future financial decisions with the goal of no debt. That meant buying vehicles outright, not taking on new mortgages, and not making other financial decisions that would require years of monthly payments.
- What are your financial non-negotiable expenses in retirement? One of the biggest non-negotiables for both of us is maintaining our home. We love our home and our garden. And to truly enjoy retirement, it was important to both of us that we had the resources to not only keep our home maintained, but also to make updates as needed.
- What big expenses do you want to plan for in retirement? We already knew how we typically spent money but wanted to explore how that might change during retirement. In addition to home maintenance as we aged (and our home aged), we found that our biggest financial want was money to travel. We mutually decided on about three weeks of annual travel during retirement and we budgeted accordingly.
- What will you do for health insurance especially if you retire prior to Medicare eligibility? Both my spouse and I were able to pay to stay on university health insurance which made early retirement a possibility for each of us. When we retired, Bill at 60 and me at 55, our monthly insurance premium was approximately $500 each. Five years later our monthly insurance premium has increased to approximately $700 each. Bill will be celebrating his 65th birthday soon and switch to Medicare. His monthly premium will be approximately $300.
2. Creating a Household Budget for Retirement
Now that we were on the same page regarding a few big questions about our retirement finances, we were ready to put together a household budget for retirement.
We actually played with our retirement budget a few years before taking the retirement leap. We monitored our current spending, talked about how retirement might impact our spending, made a few tweaks, talked some more, tweaked again and on and on.
Our household budget included our wants based on the type of retirement each of us envisioned, as well as our needs based on our current and projected financial responsibilities.
And although we weren’t quite sure how to plan for it, we recognized that our future spending would be influenced by inflation and the rising cost of living. And that there would always be unplanned expenses that we would need to cover.
Next, we created an actual retirement budget. It included needs, as well as wants. Bill entered everything we had discussed into a spreadsheet including basic monthly expenses (gas, car maintenance, utilities, vet bills, hobbies, groceries, etc.) plus annual expenses (home maintenance, travel, clothing, gifts, insurance, taxes, etc.).
Next we attempted to compare our expenses to our projected retirement income including our university pensions, individual retirement savings and investments along with our future social security income.
3. Working with a Financial Retirement Advisor
Comparing projected expenses with our actual retirement income is a difficult task with lots of moving parts.
A financial advisor specializing in retirement could write an entire book on this topic. Some questions to consider related to retirement income include: At what age will you take social security? How much have you saved for retirement? At what risk level are you invested? Should you keep working to save more for retirement? Do you have a pension? Do you have other investments and/or sources of retirement income? How will you cover big, unplanned expenses?
It was time to bring in the professionals!
So, with our retirement budget in hand, Bill and I scheduled a series of meetings with our financial advisor. Specifically, we used a retirement planner at TIAA.
As university employees, our retirement accounts were already with TIAA and the advisors had a strong understanding of university retirement plans and related benefits.
Additional Questions Posed by our Financial Advisor
After reviewing the retirement budget we prepared, our financial advisor asked us to consider these additional questions before running the numbers:
- How is your retirement impacted if you work longer? As university employees, Bill and I each have an individual retirement pension. Based on years of experience and age, at 60 Bill had reached his full university retirement. However, at 55, and under a different university policy, I was still 7 years shy of full retirement and would incur a 45% penalty if I retired early. Our financial advisor was able to help us consider options and analyze how early retirement would impact our retirement financially not only related to our pensions but also the possibility of continuing to contribute to our individual retirement accounts.
- How comfortable are you with risk? Our financial advisor administered each of us a risk analysis questionnaire that helped us examine how our individual retirement accounts were invested now and how we might make adjustments in the future as we age.
- Have you considered long-term care possibilities as you age? In addition to basic health insurance, which we had already considered, our financial advisor helped us explore long-term care possibilities and options. Long-term care can be a huge unplanned expense and most definitely is worth considering when deciding if it is time to retire.
- Is it important to you to leave money to children, other family members and/or charities? Bill and I already had a will and beneficiaries assigned but we hadn’t considered intentionally planning to leave monies at the end of our life. With the help of our advisor we were able to consider this possibility, a very personal choice, and then make adjustments accordingly.
After answering the questions posed by our financial planner, she completed an analysis of our retirement budget as compared to our projected retirement. She used financial calculators developed specifically for retirement. The result was a 50+ page report that examined our probability of retirement success.
The amount of information was incredible and helped us in making our final decision to retire early.
It was decided…it was (financially) time to retire!
Personally, do I feel like it is time to retire?
But, were we ready to embrace a new life? That of a retiree? And what would that look like?
Join me for my next blog post where I explore the personal side of retirement and questions we considered when making the retirement leap, Is it Time to Retire? Ask Yourself these Questions (Part 2).
Cheers to retired life, and as always, happy gardening!
X Penny Pennington Weeks
You may also like these posts about retired life…
8 Reasons I Love Day Trips as a Retiree
Romanticize Retired Life at Home with Picnics for Two
How I Embrace a Soft Life Now that I’m Retired
Three Tips on Creating a Happy Retired Life
How to Enjoy Retired Life: Creating a Retirement Routine
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