Time has flown. The possibility of retirement, which seemed as far as the setting sun on a drive home from work maybe 30 years ago, now looks much closer to your windshield.
But you may not be quite so sure when you’ll be ready to call it a career. Some people make the mistake of thinking they’re ready for retirement when they are not. They take the leap but find out retirement isn’t as carefree as they imagined, primarily because their retirement plan, or a haphazard version of one, had critical gaps and didn’t sufficiently cover their needs and wants.
If you’re getting close to putting your work life behind you, make sure you give all of the financial implications of that big step a thorough analysis. Here are five important factors to consider when determining whether or not you’re retirement-ready:
It’s all about your lifestyle
Know what you want in retirement, where you want to go, what you want to do, and most importantly, how you want to feel when you do it — confident, secure, free and in control.
Here’s an example: Look ahead into the early stage of your retirement, and let’s say you’re taking a dream trip to Italy. You’re there two weeks, but you’re always thinking about money when you’re there — either what your money is doing for you in investment accounts or how much you’re spending. So you’re worried, and you’re not fully enjoying this dream trip.
Perhaps you’re good at tabling all those thoughts and emotions while traveling but then return to concerns about how much you spent or how your investments are doing. This is evidence of not having planned well.
The same concept applies in retirement when going out to dinner, buying a nice gift or considering your next car purchase: If you’re worried about the expense and wondering whether you can afford to do the things you’ve always wanted to do, then you’re not experiencing retirement as it was intended.
Having predictable income and cash flow is essential
These are the key drivers of an enjoyable retirement lifestyle. Many people in the previous generation retired with a pension and Social Security, and those income sources covered the majority, if not all, of their lifestyle needs. But today, savings is what drives the retirement lifestyle. Few people today receive pensions, the cost of living is higher, Social Security barely covers needs, much less the wants, and many retirees today want to go more places and do more things — all of which costs more.