Retirement! You?! Maybe!

Retirement is defined when a person withdraws from the workforce…but what we’ve seen in a couple of decades of working with people:  Retirement means different things to different people and what defines “readiness” can be very different from person to person.

How do you know if you’re ready to take that big leap you’ve been hearing about since you first entered the workforce? Despite fantasizing about the day you could FINALLY stop pushing papers and still get paid, many people are afraid of retirement and all of the changes it represents. For many, their jobs become their identity – how they feel seen and valued in the world. For others, they’ve been emotionally ready but not entirely clear if their bank accounts would agree. Once you hit this stage of life, it is pretty common for mental and emotional stress to creep in. 

Here are some questions to ask yourself that may help indicate when you may be ready for retirement!  Let’s start with the financial ones:

Have You Saved Enough?

Of course – let’s start with the big one.  The question we spend most of our time helping our client answer.  Do you have enough set aside so that you don’t have to work?  There are so many different rules of thumb:  “Have 10X your income” says CNBC^[1]https://www.cnbc.com/select/savings-by-age/, “Have 8X your salary by 60” says Fidelity^[2]https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire.  Here’s the practical truth:  There is no blanket rule on how much is enough.  We’ve watched people run through 20X their income in two years and we have clients who are doing just fine in retirement having only saved 2X their pre-retirement income.

This may produce an eye-roll as epic as my 10-Year Old son after being told to empty the litter box…but….it depends.  The “number” depends completely on your spending habits, your debt burden, retirement income you may be entitled to…and the financial commitments you may have to others.

Here’s one piece of blanket advice we would give:  Save as much as you can as early as you can.  In fact, over-save.  In this era of higher interest rates and higher inflation, there are so many options in terms of how and where you can put money away.

Is Your Mortgage Almost Paid Off?

Paying off your mortgage is a huge feat.  If you already have – congratulations! No more mortgage payments will significantly change your monthly budget.  You worked for decades to get to this point and now the pressure of monthly payments to a bank is off and you have the full equity in your home for financial flexibility, as well!

Now that you don’t have to pay the mortgage, where should you put that money?  Put that money away in your accounts – (savings, increase 401k, start a new investment account).  You no longer have to worry about paying the bank, so pay yourself!  Consider setting up automatic transfers so money gets put in your savings or investment account without you even having to think about it. 

If you have grandkids or other younger family members, you can help invest in their education. It’s no secret that higher education is more expensive than ever, so you may want to consider supporting your loved ones’ futures if you have the means. 

Are you not quite there yet?  Well – evaluate whether it makes sense to pay off your mortgage.  If your rate is in the 2-3% range from a refinance in the last ten years – you may not want to rush to pay off your balance.

Are You Eligible for Social Security…or Your Pension?

With today’s longevity trends, retiring at 60 could mean being retired for nearly as long as you spent in your career. When you have spent most of your adult life working, it can be hard to imagine life without your career. Age is a very important factor when it comes to retirement, as your age can alter the benefits you receive.

For those who retire in their late 50s or early 60s….

Retiring “early” can affect your pension plans and IRAs, Social Security, and Medicare/health benefits. 

Individuals who have pensions, such as federal employees, are able to start withdrawing from their retirement funds at age 55. However, there are many choices in front of you depending on the age you start withdrawals and if you choose a survivor benefit.  

If you withdraw money before the age of 59 ½ from IRAs or qualified plans are subject to an early withdrawal penalty from the IRS. This means you would have to pay the IRS 10% of your savings for withdrawing early. This is important to consider when deciding when you can retire as you would ultimately lose a chunk of the money you saved. 

You can claim Social Security as early as Age 62.  However, for those who claim Social Security benefits before “Full Retirement Age” (age is 67 for anyone born in 1960 or later) your benefit is reduced by 8% per year. In order to counteract this, you can retire at age 65 or earlier, collect Social Security retirement benefits, and work at the same time before the full Social Security retirement age. However, your benefits will be reduced if you earn more than the yearly earnings limits.

If you retire before the age of 65, you are not eligible for Medicare coverage, and you will need to account for health insurance premiums in your savings. 

…and for those who retire a little later.

Waiting a few extra years to retire can help get you more benefits than retiring early. You will get your full Social Security benefits at age 66 or 67 (depending on when you were born), which can make a huge difference in the comfort of your living situation. It also means you will be eligible for Medicare, which will save you on out-of-pocket health insurance costs. 

If you wait to retire until you are 70, the incentive is an even higher Social Security payout. How about this folks….some of our clients who waited until 70 to take Social Security are receiving a gross amount of almost $50,000 after the 2023 cost of living adjustment of a whopping 8.7%! 

Additionally, as previously mentioned, the longer you wait to retire, the more money you will have. The tradeoff, of course, is the longer you wait, the less time you may have to enjoy it.

Are You Unhappy or Bored With Your Current Job?

Sometimes your emotions know it’s time to retire before you do. You might be unhappy in your current job without consciously realizing it. Here are some signs that you are unhappy with your current job:

• You find yourself absenting yourself from meetings inadvertently
• You complete your to-do lists on auto-pilot.
• You covet the enthusiasm in your partner’s or pals’ voices when they describe their workday.
• You lack excitement for the mission and objectives of your organization.
• You are always monitoring the time at work.

If any of these sound like you, you may want to consider retiring. Staying in a job that you are unhappy in will affect your mental health as well as increasing the load on those who work with you. 

Are You Ready To Do Something Else With Your Time?

In over two decades of helping people retire, we are constantly amazed at the reinvention of lives and excited new chapters we have a front row seat for.  We’ve watched business people become the happiest of grandparents, start a new life on Cape Cod, volunteer at schools, coach and run youth sports, advise businesses and nonprofits, run for City Council, dedicate time to caring for loved ones, curate amazing gardens, travel the world, volunteer at food pantries…the list is endless!  

We’ve also seen people that have struggled settling into a new life without work.  Reduced social connectivity and sense of purpose are two main non-financial barriers when it comes to retiring.  As you consider your next chapter – dream a bit.  If you are in your final years of working (we like to refer to this as “T-Minus 10 Years or Less To Retirement”) set aside some time for self reflection and conversations with your partner about what that next chapter looks like.

Have You Completed a Retirement Income Analysis?

Meeting with a financial advisor is an option to set yourself up for success. A financial advisor can teach you about what options you have for types of retirement funds and/or choose the best bond funds. They can help you prepare your financial investments without the support of your job. Sometimes the most important role we play as advisors is being that sounding board for questions, fears, concerns, life changes, dreams and new ideas.

A financial advisor can help you manage your money, or even manage it for you. A financial advisor can assist you with the following:

• Helping you create an emergency fund
• Assisting with saving and budgeting
• Planning to meet short- and long-term goals
• Retirement income planning
• Tax planning
• Explaining income and investment strategies that make sense for your situation
• Identifying a balanced asset allocation or investment mix for your portfolio
• Paying down debt
• Managing your Investments as a Fiduciary

Working with an advisor to curate a Financial Plan in your 40s and 50s may have you well prepared for the decisions you’ll need to face in your 60s and 70s.  Once you have retired, consider periodic reviews to keep track of any changes in your lifestyle and budget. 

A Financial Advisor should also be guiding investments choices which take into consideration your growth needs, tolerance for investment risk and mostly pertinent for retirement planning what role your investments play in terms of generating income.

P.S.: If you want more information about how a financial advisor can help you, feel free to give us a call or send us a message.

Overall, assessing your readiness to retire means assessing your finances and your emotions.

Yes. You.

First, assess if you are financially stable enough to support yourself without an earned income for the foreseeable future. Do you have enough contingency funds?  Will your post-retirement income cover your retirement expenses?  Do you know how much Social Security or your Pension will pay you and your survivor?  Have you paid off major debts such as your mortgage? If you answered yes to these questions, it may be a sign you are ready to retire. If you are unsure if you are financially ready to retire, consider meeting with a financial advisor who can analyze your savings so far and forecast what you need for your retirement.

Second, assess how you are feeling about your job. You may have been doing the same job for decades – it may be hard to imagine life without it. However, this doesn’t mean that you should continue to hold onto your job. Are you feeling unhappy or unsatisfied? Do you feel like you are going through the motions? Has the “spark” that this job once gave you fizzled out? These are all signs that you are emotionally ready to retire. Consider hobbies you could develop and events and trips you could attend if you did not have to work. Do you feel ready to start this next chapter of your life? If so, it may be a sign you are ready to retire. 

At Arsenal Financial, we act as our clients’ Financial Health Team. We examine one’s financial picture (like an MRI) and come up with a treatment plan to increase the chances of a happy and financially healthy retirement! 

We have two offices located in the Boston area, just west of the city in Watertown, MA and on the South Shore in Norwell, MA…and have clients work with us remotely scattered across the country!  If you are looking to get started on your retirement journey, contact us now! Our team is ready to guide the way. 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.