Retirement is a major accomplishment and something that you might find yourself looking forward to years before it actually happens. But deciding when you will retire involves more than just picking an age at which you'll stop working.
The more prepared you are, the more you can enjoy those special years. You can increase your readiness by asking yourself these five important questions before you plan on retiring.
1. Do you have enough saved?
How much money should you save to support 20 years -- or possibly more -- in retirement? You can find out with a simple retirement savings calculator. Using inputs like how much you currently have saved, your annual contributions, and your expected rate of return, you can get a good idea of whether you will have a shortfall.
If there is a deficit, how will you reduce it? You can start by doing things like saving more or lowering your expenses. If you still have a gap after taking these actions, you can consider retiring later than you'd originally planned.
2. Do you plan on maintaining your lifestyle or reducing your spending?
When you retire, do you want to have the exact same lifestyle that you have now, or do you plan on living off of less? Your answer to this question will impact how much you will need. You could need up to 100% of your preretirement income after you've stopped working, but most experts agree that aiming for 80% of your preretiree wages is a good benchmark.
In the years leading up to your retirement, you can start by taking stock of guaranteed income sources that you can depend on in retirement, like Social Security. Next, you can look at other income sources that you may have created like rental income or dividend streams. If these sources don't add up to what you will need, your retirement savings will need to make up the difference.
3. How long could you potentially live in retirement?
According to a 2020 study by Allianz Life, 6 out of 10 nonretirees expressed fear of running out of money in retirement. Thinking about how long you could live can be unsettling, but the reason it's so important is that it gives you the ability to plan for the duration of your retirement -- which can help you avoid this fear.
Your life expectancy gets calculated based on a number of things, including your gender and current age. Your overall health is also important, as is your family history of longevity. The longer you live in retirement, the more years you'll need an income. You don't have a crystal ball, so exactly guessing this number right will be difficult, but this will at least give you a good idea.
4. When will you take Social Security?
You can claim your Social Security benefit as early as age 62, take it at your full retirement age, or delay it up to age 70. The amount that you receive will differ, though, based on when you opt in. Your full retirement age is either 66, 67, or some time in between the two ages. Your benefit will be reduced if you take it before your full retirement age and increased if you delay it past your full retirement age up to age 70.
You can consider a number of factors when deciding when is best for you. Do you need the money at an earlier age? Do you think that you will live a long life in retirement? Will you fully retire or partially retire? There is no right or wrong answer, and when you should take it is completely unique to you and your personal circumstances.
5. Are you emotionally ready to retire?
You might put so much time and effort into worrying about whether you can comfortably retire financially that you can easily forget that retirement can be an emotional decision as well. According to the U.S. Bureau of Labor Statistics, the average American works 34.7 hours each week, which makes up a huge chunk of your waking hours.
How will you fill those hours? Will you spend them with your family or pursuing hobbies? Having a plan for how you will use your free time in retirement can help make this period of your life more rewarding.
Retiring is more than just picking a day when you will stop working. It is a major life accomplishment. Answering these questions might take you some time, and they won't all be easy. But the work will be well worth it if it helps you achieve the retirement of your dreams.