As an avid Packers fan, one of my most painful sports memories was the retirement/unretirement/retirement of Brett Favre. Now eight years -- and one Super Bowl victory -- removed from the debacle, I can see the whole episode for what it really was: someone grappling with one of the toughest decisions any human being has to make.
While most people will never run onto the gridiron on Sunday, many of us will be faced with the question of whether to retire -- and when -- at some point in the future. The question is one part financial and about 15 parts social and emotional. To help you figure out if you're ready to retire, simply answer these questions and I believe you'll have a much better idea.
1. How do you feel on Monday morning?
This might seem like a naive way to start this article. Don't most people hate going to work on Monday?
That might be the case. But I'm not saying you should automatically retire if you don't like going to work. Instead, I'm coming at the question from a totally different angle. If you are excited to get up and go on Monday morning, don't even think about retiring.
If you find yourself in this group, congratulations! I still think you need to read the next step, but after that, simply revisit this next year.
2. Do you have at least three core pursuits?
The days of viewing retirement as a time to sit on the couch and watch TV are long gone. In fact, I'm not really sure they ever existed outside of pop culture. I'll get to what core pursuits are and why they're important in a second, but first...
In 2015, Merrill Lynch and Age Wave got together to study what retirement looks like today, especially given the longer lifetimes that today's retirees can enjoy.
One of their key findings was:
Leisure before retirement... is often about relaxation and de-stressing... [and] pre-retirees often want to escape structure. Leisure after retirement... is often about engagement, connection, and activity... [and] retirees often desire to balance both structure and non-structure.
That shift is crucial, and Merrill Lynch and Age Wave aren't the only ones reporting that engaging activities are important. Wes Moss, chief investment strategist for Capital Investment Advisors and host of the Money Matters radio show, has done the best kind of research on the topic: He went out and talked to thousands of retirees. He asked them questions about their satisfaction with retirement, their income, and their habits and behaviors.
One of his key findings was that while income does have some effect on overall happiness in retirement, it wasn't the top predictor of contentment in your golden years. That came down to core pursuits -- defined as any activity that is engaging and helps give you purpose and meaning. Core pursuits can be as varied as gardening, volunteering, spending time with grandchildren, biking, or even holding a part-time job that gives you something greater than just a paycheck.
Moss found that retirees who said they were happy had an average of 3.6 core pursuits when they entered retirement, while those who said they weren't satisfied in retirement averaged less than two.
The key phrase here is "when they entered retirement." If you are a workaholic or otherwise have lived an unbalanced life, don't wait until retirement to develop these pursuits. Instead, I would highly suggest slowly pulling back on work while opening up time and space in your routine to find some of these core pursuits.
Without them, you'll be lacking perhaps the most important thing in retirement: purpose and meaning.
3. Can you make ends meet on your income?
I put this question last for a reason. First, because without the first two pieces of this article, it doesn't really matter if you can live on your retirement income -- you'll be miserable anyway. And yet, it is still undeniably important -- if you're losing sleep about not being able to keep the heat on, that's not a very rosy existence, either.
In general, you should figure out how much money you can safely live on in retirement. To do this, you'll need to consider three buckets. In the first you have Social Security. To figure out what you and your spouse's benefits might look like, visit the Social Security Administration's retirement estimator.
The second bucket to consider is your own retirement savings. This includes everything that you've gathered in your nest egg: 401(k)s, 403(b)s, Roth IRAs, and traditional IRAs. While you'll need to meet with your financial advisor to go over tax implications, the 4% rule should give you a ballpark of how much you can safely pull out of your nest egg each year. In other words, if you have $500,000 saved up, that can safely provide $20,000 of income each year -- and you can adjust that number up for inflation every year.
Finally, we have an "other" bucket. This includes income from any pensions, defined benefit plans, real estate, or even part-time jobs.
In the end, you should add these three numbers together and practice living on this budget for at least six months. Remember that your transportation costs will likely dip as you don't need to commute anymore, and most people see their food budget shrink, too -- as they have time to cook food instead of eating out to save time.
Once you have those three questions figured out, you'll be able to know with as much confidence as anyone can have that you're ready to retire.