How to Know You’re Ready to Retire

Improving economic conditions have older workers feeling more comfortable to take the leap into retirement—but are you ready to join them?

While your financial situation plays a major role in the decision, experts say there are other factors that need to be taken into consideration.

“Age doesn’t retire, your cash flow does,” says Bryan Philpott, co-founder of Aspire Wealth Management. “A lot of people say to make sure your debts are paid off [before you retire], but you really need to make sure you have adequate cash flow.”

To determine a sufficient cash flow, Philpott suggests determining your desired retirement lifestyle. For instance, do they plan to travel, downsize, or pick up a second job? Setting your objectives will help create a retirement savings goal.

While setting a savings goal is important, Andrew McNair, founder and CEO of SWAN Capital, says it’s also important to find ways to make your money grow in retirement. He recommends forgetting the old advice of accumulating money and hoping it lasts, and instead focus on finding a steady and recurring revenue stream

“To create the goose, start by adding up all your incomes in retirement (Social Security and pensions) and subtract it by your expected expenses,” he says. “If you discover a shortfall, seek professional counsel to help you create a way to produce a guaranteed inflation-protected income to satisfy this gap.”

Delaying retirement has its benefits, particularly from a Social Security perspective. Instead of claiming Social Security at 62, waiting one year will bring 5% more in Social Security income. Wait even longer, and every year after age 63 brings a 7% increase in payouts, according to Philpott. Hold out until your 66th birthday, the payments rise 8% every delayed year.

“There are different claiming strategies that you need to take into consideration to help maximize cash flow,” says Philpott. “You want to most cash flow you can have in retirement.”

While it’s impossible to accurately predict your future medical costs, they have to play a large role in your long-term saving strategy. Many people end up in retirement for 30-plus years, increasing the likelihood that they will get sick or hurt.

You want to make sure your finances allow you to cover the costs if you are hospitalized or need to have some form of assisted living. “Baby boomers don’t realize they can very well have a retirement that’s as long as their working career,” says Nick Ventura, president and CEO of Ventura Wealth Management. “You’ve got to think through what happens when you can’t take care of the house anymore or you need assisted living.”

Aside from being financially able to retire, you must also be mentally and emotionally prepared. Leaving the workforce is a major life change, and can lead to anxiety, depression or both.

Ventura breaks retirement into three phases with the first phases focused on planning what you are going to do in the first week, first month and first six months. That means figuring out what activities you are going to do to keep yourself busy and happy.

“We don’t let clients retire until they can answer that question,” says Ventura. “It’s such an anxiety-filled moment for a lot of people. They think retirement is an event and it’s not. It’s a long-term process.”