How to tell if you're ready to retire

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Are You Emotionally Ready For Retirement?

I retired when I was in my mid-50s, the day my boss walked into my office, handed over the dreaded manila envelope and told me to clear out my work space by the end of the week. Fortunately, I knew it was coming because it was no secret that my company was facing hard times, and so I had time to prepare.

But suppose you're lucky enough to choose the timing of your own retirement. How do you know you're ready and that it's finally time to take the leap? You're probably thinking in terms of money. Can you afford to retire? Of course that's important, but it's not the only issue. Here are five questions to answer before you enter retirement.

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1. Do you have something else to do? The biggest difference between working and being retired is that you no longer get up, get dressed and go to work five days a week. Now you have to fill your own time and structure your own day. That's easy if you have a passion outside of work – whether it's playing in a band, writing your memoirs or roaming the golf course. If you don't have an inborn passion, then you need to recognize that retirement is a new stage of life, and you probably want something to do, especially if you're retiring early. Some people take on a part-time job, while others volunteer in the community. Ask yourself what you really like to do, what engages your interest, and realize that finally here's your chance to do it, no questions asked.

2. Are you ready to pass up more money for more freedom? In all likelihood, you will have less income after retirement. So you know you're ready to retire when you reach the stage in life when you're happy to live on less in order to live where you want and the way you want. Experts say you need 80 percent of your working income to retire comfortably. But many people retire on less, because their desire for free time outweighs their need for more material goods or their impulse to keep up with the Joneses. They just want enough time to enjoy retirement, and they're willing to adapt their lifestyle to the resources they already have.

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3. Do you want to spend more time with your family? It's almost a cliché, but for many people it's true, especially when it comes to grandchildren. According to a study from Fidelity Investments and the Stanford Center on Longevity, over 60 percent of retirees cite spending time with grandchildren as a major reason for retiring. But be careful. According to that same study, spouses often have different views about spending time together. Some 60 percent of husbands say they want to spend more time with their wives, while barely 40 percent of women want to spend more time with their husbands.

4. How is your health? Health issues are very personal. Some people with a chronic disease, or a family history of heart disease, may want to take early retirement to enjoy life while they can. Others may have to hold onto a job to keep their health insurance. Regardless, you should understand Medicare and have your retirement medical insurance in place before you leave any employer sponsored plan. But if you suffer from a lot of stress at work, then retiring may actually improve your health. In fact, almost two thirds of retirees cite stress as a significant motivating factor in deciding when to retire. Retirement may also give you the extra free time to do more exercise and prepare healthier meals.

5. Can you afford to retire? Finances are not the only reason to retire, but they are important. Make an estimate of what your new lifestyle is going to cost. Include extra expenses for travel and health care. But also consider that you no longer need to save part of your income or support your children, and you can make adjustments to your living arrangement, including possibly moving to a lower cost area of the country. Then count up your resources from Social Security, a pension, an IRA or 401(k) plan and wherever else, and try to make them match up. You can't possibly account for every penny – there are too many unknowns – but you should have some degree of confidence that you can pay your way through this new adventure called retirement.

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AUCKLAND, NEW ZEALAND - MAY 27: The Auckland CBD city skyline including the Sky Tower and to the right Devonport, as seen from North head on the North Shore, Auckland New Zealand, Wednesday, May 26 2004. (Photo by Michael Bradley/Getty Images)
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SYDNEY, AUSTRALIA - DECEMBER 30: Waiting for the new year fireworks, Australians set their tents up at Sydney harbour, December 30 , 2013. (Photo by Recep Sakar/Anadolu Agency/Getty Images)
A Northern light (Aurora borelias) is seen near Tromsoe, Northern Norway on October 21, 2014. AFP PHOTO / NTB scanpix/ JAN MORTEN BJOERNBAKK NORWAY OUT (Photo credit should read JAN MORTEN BJOERNBAKK/AFP/Getty Images)
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