Are you ready to bring your career to a close? If you've been plugging away for decades and are tired of the daily grind, it could be the right time to submit your resignation.
But not so fast. Retirement isn't the sort of thing you can afford to jump into. Before you make that decision, you'll need to honestly answer these questions first.
1. How much money will my nest egg provide for me?
Ideally, you'll enter retirement with a decent chunk of money in your IRA or 401(k) plan. But how much annual income will your nest egg allow for?
To figure that out, you'll first need to land on the right withdrawal rate. Some financial experts still swear by the 4% rule. If you expect to have a lengthy retirement, you may want to veer more conservative and stick to a 2% or 3% withdrawal rate instead.
Once you land on that figure, it's simple math. If you decide you'll tap your savings at a rate of 3% per year and you have a $1.5 million nest egg, that leaves you with $45,000 in annual income. If that works for you and you don't feel compelled to save more, then you may be ready to go on the retirement front.
2. What can I expect from Social Security?
You're probably aware that Social Security will pay you some amount of money every month in retirement. But do you know what monthly benefit you're in line for?
If not, there's an easy way to find out. Just go onto the Social Security Administration's website, create an account, and access your most recent earnings statement. That document will give you an estimate of your monthly retirement so you know how much income from Social Security to expect. (Incidentally, if you're 60 or older, your statements should also come in the mail, but if you misplaced yours, you can get it online easily.)
Of course, the age at which you claim benefits will determine what your monthly Social Security paycheck looks like. If you wait until your full retirement age to file, your benefits won't be reduced -- but they also won't grow. If you're interested in getting more out of Social Security, you can delay your filing and boost your benefits up until the age of 70.
3. How will I stay busy?
The last thing you want to do is retire, only to end up bored and unhappy. When assessing your nest egg and Social Security benefits, it's important to be realistic about the options those income sources will buy you. You might think you'll spend retirement traveling the world, but if your finances will only allow for a couple of trips a year, you could end up very disappointed.
One thing you may want to consider for your retirement is a part-time job. Having one serves two purposes -- boosting your income and helping you stay busy. If you're worried about having too much downtime during retirement or not having enough income to do the things you really want to do, then part-time work could solve that problem.
Think before you leap
You may be excited at the idea of getting to retire. But before you make that decision official, run through these key questions. You may decide you're better off postponing retirement for a year or two based on your answers. That's a better bet than ending your career too soon and regretting it throughout your senior years.