Many people dream of retirement in all of its laid-back, schedule-free glory. But before you write your permanent resignation notice, you need to think long and hard about the consequences of leaving the workforce for good, because making your exit too early could leave you strapped for cash years down the road.
Here are five signs that you may not be as ready for retirement as you otherwise thought.
1. You're behind on savings
The exact amount of money you need for retirement depends on your individual circumstances and goals. If you're planning to spend your days tending to your garden or bonding with the grandchildren, then you'll need a lot less than someone whose plan is to travel the globe. According to the Employee Benefit Research Institute's 2015 Retirement Confidence Survey, 29% of workers think they'll need to save at least $1 million to retire comfortably. On the other end of the spectrum, 20% think they'll manage just fine in retirement even if they have less than $250,000 saved. The survey also found that the higher a household's earnings, the higher its savings target tended to be. Households with incomes of at least $75,000 were three times as likely as those with lower incomes to aim for $1 million or more in savings for a financially stable retirement.
That said, regardless of their individual savings goals, most Americans fall far short of what they need to enjoy a financially secure retirement. The National Institute on Retirement Security reports that 92% of working households do not have enough money to meet their retirement savings targets. So you should plan conservatively and save aggressively to meet your savings goals.
2. You're struggling with expenses now
Once you enter retirement, you'll be living on a fixed income, which means you're likely to have less spare cash than you do now. According to a new survey by the Center for Financial Services Innovation, 57% of American adults are presently struggling financially. If you're one of them, you may want to rethink your retirement plans until you get a handle on your current expenses. Study your living costs now, while you're still working, and identify ways to reduce them. This may include downsizing your home or reducing the amount of money you spend on entertainment. You need to reach a point where you can comfortably make ends meet based on your working income before you can even contemplate living on even less.
3. You have a lot of debt
When you're living on a fixed income, debt can be a huge drain on your limited resources. According to a 2015 report by The Pew Charitable Trusts, older generations are increasingly entering retirement with debt. The study found that 80% of baby boomers (roughly 51- to 70-year-olds) and 56% of retired members of the silent generation (roughly 71- to 91-year olds) hold at least one type of debt. If you still have a large amount of debt, you're better off delaying retirement until you can reduce or eliminate that load. Ideally, start by paying off bad debt, like that high-interest-rate charge you've been carrying on your credit card. From there, you can work toward paying off "good debt," such as your mortgage. Remember: The longer you carry debt, the more interest you'll end up paying, and at a time in your life where you may not have an opportunity to increase your earnings, losing money to interest charges doesn't make a whole lot of financial sense. You're much better off entering retirement with a clean slate.
4. You love your job
Some people dread going to work and spend their days counting down to the weekend. But if you're among those lucky folks who happen to love going to work, you may not want to cut that cord so quickly. According to research from the Institute of Economic Affairs, retirement can lead to declines in both mental and physical health. Specifically, leaving the workforce correlates to a 40% greater likelihood of suffering from clinical depression. In other words, the benefits may be far more than financial. There are mental, physical, and emotional benefits to working, and if you enjoy what you do, that's all the more reason to stick with it, provided you're in good enough health to do so.
5. You get bored easily
If you're the type of person who doesn't enjoy downtime and doesn't have many hobbies, then retirement may not be the breezy, blissful experience you expect it to be. To go from working full-time to not working at all means suddenly having a lot of hours to fill -- forever. Unless you have a plan for how you'll spend that time -- and the money to do so -- working might be a more satisfying existence.
You could also settle into full retirement gradually by working part-time or on a freelance basis for a while. If you have special skills or expertise, you could pick up odd jobs or consult. If you've dedicated years to perfecting a hobby, such as woodworking or baking, then you might be able to turn that hobby into a moneymaking business. And if you need stimulation and purpose more than you need money, try volunteering for a cause that's near to your heart.
Retiring when you're not ready could mean setting yourself up for years of financial struggle and disappointment. Before you take the leap, make sure retiring is really the right move not only from an economic perspective, but from an emotional one as well. Remember, too, that retirement doesn't have to be an all-or-nothing prospect. If you can no longer handle a 40-hour work week, look for ways to make some extra cash on your own schedule. It may be exactly what you need to maintain your sanity while keeping yourself financially afloat.