Many folks dream of retiring all their lives. If you're thinking of closing out your career this year, you're no doubt excited over what retirement might bring. But before you make that decision official, ask yourself these key questions first.

1. Have I reached full retirement age for Social Security purposes?

Though Social Security is only designed to provide a portion of your retirement income, it will still most likely play a significant role in your finances, and so it pays to maximize those benefits. One way to do so is to wait until you've reached full retirement age to file for Social Security. In doing so, you avoid slashing your benefits by virtue of filing early. (This assumes, of course, that you'd file for benefits as soon as you retire, which, if you have ample savings, wouldn't necessarily be the case.)

Your full retirement age is based on your year of birth, and it's either 66, 67, or somewhere in between. You can file for Social Security as early as age 62, but know that your benefits will take a hit for each month you file ahead of your full retirement age. Of course, if you're younger than full retirement age and can get by on your savings alone, you can retire and file for Social Security later on without negatively affecting your benefits. But if you'll need those benefits the moment you retire, it might pay to wait until your full retirement age.

An older couple smile as they embrace outdoors.


2. Have I saved enough?

As a general rule, you'll need about 80% of your pre-retirement income to live comfortably once your paycheck disappears. If you have enough savings at present to make that happen, then it might be the right time to retire. But if you're short on savings, you could end up cash-strapped and disappointed in retirement.

How do you know if you've saved enough? Take a look at your salary and figure out what 80% entails. Then, figure out what you'll get from Social Security each year and make sure your savings can fill whatever gap is left.

You can use the 4% rule to assess your savings. The rule states that if you begin by withdrawing 4% of your nest egg's value your first year of retirement and then adjust subsequent withdrawals for inflation, your savings should last 30 years. The rule isn't perfect, but it can help you determine where you stand from a savings perspective.

Let's say you're earning $100,000 at present and are contemplating retiring. That means you'll want about $80,000 a year in retirement income. Let's also assume that $30,000 of that will come from Social Security if you retire right now. That leaves you with a $50,000 gap to fill annually. If you multiply $50,000 by 25 (going by the 4% rule), you'll see that you need a $1.25 million nest egg. If that's what your savings look like, then you're probably good to retire, assuming you don't have extravagant plans for your golden years. On the other hand, if you're only looking at $1 million in savings, it might pay to postpone retirement for a few years and build a more substantial cushion so you're not forced to cut expenses as a senior.

3. Do I enjoy going to work?

Many folks consider themselves unhappy at work. If that's been your experience of late, then it's natural to want to retire as soon as you can possibly can. But what if you're in the opposite camp? What if you enjoy your job, and get a lot of personal satisfaction from the work you do? In that case, retiring this year could be a move you end up regretting, even if you've saved nicely and don't have to worry about negative Social Security ramifications.

If you love your job, a better bet might be to consider a phased retirement, where you cut back on your hours and gradually ease into that milestone rather than go from a full-time work schedule to no schedule at all. That way, you'll get more time to yourself once you start working fewer hours, but you'll also enjoy some of the structure your job provides as you get used to doing less of it.

4. Do I know what I'll do with my time?

It's an unfortunate statistic that retirement increases the likelihood of suffering from clinical depression by 40%. The reason? Once retired, many seniors find themselves bored, restless, and starved for entertainment.

Think about it: When you work full-time, playing hooky for a day to kick back and watch TV is a fun break from the grind. But if that becomes the only thing you do day in, day out, it'll get old very quickly. Before you complete your decision to retire, figure out what you'll do with your time. Maybe you'll volunteer, take classes, or help care for your grandkids. It doesn't matter how you occupy your days as long as you have a game plan in place.

Eager as you might be to retire, you don't want to jump the gun and struggle financially or mentally as a result. Ask yourself these key questions before retiring, and you'll be in a much better position to decide whether the time is right to move forward.