How to Know If You're Financially "Okay" To Retire

Many clients who come to Wood Smith Advisors for financial guidance have one pressing question on their minds:

Am I financially “okay” to retire?

Retirement is an emotionally complex and financially stressful milestone. Even if you’ve diligently saved over the course of your career, there can be a lot of uncertainty around whether or not you’re truly “ready.” 

Retirement readiness is something that’s unique from person to person. Determining whether or not you’re prepared to take the leap requires some forward-thinking about your lifestyle, and how you imagine your ideal retirement.

What Are My Current Circumstances?

Your first step is to take a closer look at your current financial circumstances. You need to look at your debt and financial responsibilities (like utilities or insurance), Medicare premiums, and expected cash flow in retirement. 

Understand what your basic expenses look like before you retire, and how much money you’ll need each month to cover them. Even if your basic expenses don’t include everything you’ll spend money on in retirement, they’re an excellent place to start. 

What Type of Lifestyle Do I Want?

Once you know your basic retirement budget, you can start to outline other lifestyle needs. Ask yourself: 

What type of retirement do I want?

When you think about retirement, do you imagine having a cozy life in your hometown near family? Traveling around the world? Spending your time volunteering? 

Retirement is an emotionally challenging time - and not just because of the financial stress that comes with ending your career. You’re leaving a chapter of your life where you had goals and a clear purpose. Retirees often feel overwhelmed by the sudden shift in their lifestyle, so it can be helpful to have some clear cut goals. 

In other words, retiring to something is critical. This “something” is different from person to person. You need to determine what type of retirement is going to make this next phase of your life fulfilling. Once you have an idea of your ideal lifestyle, you can combine potential expenses with your baseline retirement needs to have a broader view of your retirement readiness.

Will My Savings Cover Everything?

Think of your retirement lifestyle in three categories: needs, wants, and wishes. Your financial needs in retirement include any debt responsibilities you have, living expenses, and healthcare costs. Wants may include a new car every several years or spending $10,000 per year on travel with your spouse or partner. Wishes take this a step further - they focus on leaving a legacy, or building a long-term impact with your wealth. 

When you combine your needs, wants, and wishes, you have a comprehensive retirement plan. Of course, once you know what your retirement will truly cost, you can take a closer look at your current savings. Will it be enough?

If your savings fall short, you may need to adjust your retirement timing to build a bigger nest egg. Another option might be to cut down your basic living expenses now in order to boost savings to retire sooner. Only you and your spouse or partner can determine which path is right for you. 

Want help working through your retirement readiness? Contact us today! We would love to help you build your comprehensive financial plan.

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.