When it comes to deciding
when to start your retirement, it can feel like a guessing game. There are a
variety of financial and emotional factors to consider before making the move
to the next phase of your life.
While
many workers look forward to retirement and the new changes it brings, others
might struggle over when exactly to retire. There’s no perfect science or magic
number to determine when to retire. But there are good indicators that, when
watched and considered closely, may help provide the basis for a decision that
is right for you. Paying attention to retirement savings and creating a plan
for what to do during retirement may help you better understand when you are
both financially and emotionally ready for retirement.
Financial Readiness When
Planning for Retirement
When
a group of over 2,000 working Americans ages 40-70 were asked about retirement
in a 2018 study, about one-fifth of them said they were financially unprepared
for retirement.1While many
retirees rely on Social Security benefits to help fill savings gaps, currently,
Social Security benefits only cover approximately 40 percent of an average
worker’s pre-retirement income.2 Personal
savings and Social Security benefits provide just a couple of the sources for
retirement income and can be supplemented by other sources, such as individual
retirement arrangements (IRAs), employer-sponsored retirement plans (401(k)
plans, pensions, profit sharing plans, etc.) and fixed indexed annuities.
Financial
needs in retirement are as unique as each retiree. So, when considering whether
you are ready to retire, review your financial picture to determine if you are
financially ready to stop working. A retirement calculator can compare your
income and current savings with your age and anticipated expenses to help
create a retirement savings target. You can find a variety of retirement
calculators online, free of charge.
Retirement
costs present one of the most significant factors to consider when gauging
financial readiness for retirement. There are many potential costs that need to
be considered to make sure your nest egg lasts as long as it can.
Retirement Costs: Health Care
Health
care stands as one of the most significant costs in retirement. A 65-year-old
couple retiring in 2019 can expect to spend $285,000 in health care and medical
expenses throughout retirement.3This doesn’t
include the additional annual cost of long-term care, which, in 2019, ranged
from $19,500 for adult day care services to $102,204 for a private room in a
nursing home, according to long-term care insurer Genworth.4
Taking
the steps today to make sure you don’t outlive your money can make all the
difference for entering into retirement.
Retirement Costs: Housing
Housing
also sits atop retirement expense lists, costing retirees 33 percent of their
average annual spending.5The 65-plus
population, set to balloon 90 percent by 2040, brings with it a seismic shift
in retirement living expectations, which are fostering innovation to align with
boomer priorities. As a result, the housing industry is primed for one of the
economy's most significant transformations.6
How
you prepare for those innovations and the changing market is an important
factor to consider in determining whether or not you are financially ready for
retirement.
Retirement Costs: Transportation, Food and Other Living
Expenses
According
to data from the Bureau of Labor Statistics, older households typically spend
an average of $49,279 a year on living expenses. While much of this includes
costs for housing and health care, it also includes money spent on food,
clothing, transportation and entertainment.7Having an
understanding of how you spend, as well as how much, can help you better plan
for your financial needs in retirement.
Emotional Readiness When
Planning for Retirement
Financial
goals are an important factor of retirement planning, but emotional readiness
can often go overlooked in preparing for a new phase of life. Many find that
working provides a feeling of validation, as well as other psychological
benefits, including a daily structure and social interaction. Retiring may
present a loss of those daily parts of life for some and create a risk for
depression.8
Retirement
is a significant change that brings emotional impacts. The change to retirement
can bring more boredom, anxiety, restlessness and feelings of
uselessness.
So
being emotionally ready for retirement can be just as important for your
wellbeing as being financially ready. Consider creating a list of your goals
for retirement. Do you want to travel? Spend more time with your
grandchildren? Start a new hobby? Work part time? Move to a new city? After
you’ve established your goals, create a plan to achieve those goals.
Here
are some factors to consider and steps you can take to determine if you are
emotionally ready to retire:
•
Create a daily plan of how you would spend your days during retirement. If you
thrive with a schedule, you might establish a retirement routine that helps you
plan your days, such as setting aside time for exercise, social activities,
volunteer opportunities and family meals. While your days don’t need to be
rigid, having a set wake-up time and routine can help you feel more normalcy
now that you aren’t going to work.
• Establish a retirement bucket list. Everyone has dreams of what
they could do if they had more time, money and freedom. Sight-seeing, climbing
a mountain or learning to speak French are just a few examples of what might be
on some retirees’ bucket lists.
• Find or create an emotional support system of friends and family. If you and
your spouse are friends with other couples, aim to invite them over for dinner
or board games regularly. If you don’t feel like you have enough people to keep
you socially active, consider taking advantage of the extra time in your life
to make new friends.
• Pursue a new hobby or consider a part-time job as a bridge from working to
full retirement. Having an “encore” job in early retirement can help provide
the sense of fulfillment that came with working in your career.
Making
the decision on when to retire can be a complicated decision with many factors
to consider before determining if you’re truly ready. Ultimately, though, it is
a personal decision with answers as unique as each person looking to retire.
Paying attention to both financial and emotional milestones and setting
retirement goals will help find the path that’s right for you and your needs.
Footnotes
1.
Footnote1Indexed Annuity Leadership Council,
“The State of America’s Workforce: The Reality of Retirement Readiness”
2018 ↩
2.
Footnote2Social Security Administration,
“Retirement Benefits” February 2020. https://www.ssa.gov/pubs/EN-05-10035.pdf↩
3.
Footnote3Fidelity Investments Retiree Health
Care Cost Estimate, 2019↩
4.
Footnote4Genworth Cost of Care Survey , 2020↩
5.
Footnote5U.S. Bureau of Labor Statistics,
"Consumer Expenditure Survey." 2018 ↩
6.
Footnote6 Sisson, Patrick.
“Curbed," The changing face of retirement: Apartment living, active
lifestyle and rural homes," 2018↩
7.
Footnote7Bureau of Labor and Statistics, “A
Closer Look at Spending Patterns of Older Americans” 2016↩
8.
Footnote8US News and World Report, “Can
Retirement Be a Depression Risk?” 2017↩
The
content provided is for informational purposes only and does not constitute
advice. For specific details on how this may apply to your personal situation
contact your personal financial advisor or insurance agent for more details.
American Equity contracts are only sold through independent agents. Please
contact your state insurance department to see if there is an independent
insurance agent in your area appointed to sell American Equity annuity
contracts.
American Equity Investment Life Insurance Company® does not offer legal,
investment, or tax advice. Please consult a qualified professional. Guarantees are based on the financial
strength and claims paying ability of American Equity and are not guaranteed by
any bank or insured by the FDIC.
Published June 30, 2020
https://www.american-equity.com/resources/blog/how-to-know-when-youre-ready-to-retire
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