Should you retire in 2018?

Are you thinking of retiring this year? No wonder, as retirement means having the time and freedom to pursue whatever your heart desires.

But before you decide that 2018 will definitely be the year when you clock out for good, there are a few important things you need to consider.

Do you have enough savings to support you?

Before you even consider retiring, do the math on how long your savings will last. The majority of pre-retirees in America are underfunded for their future and don't have nearly enough savings -- especially given our growing life expectancies.

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7 things to do before you retire

Figure out your stable retirement income.

Take stock of any pension or Social Security income you expect to get during retirement. This stable income should form the basis of your budget, but probably won’t cover all of your expenses. This is your base retirement income that your savings and investments build upon.

Look at your other retirement income sources.

Determine what you can expect to draw down from your personal retirement investments. You may want to meet with an investment advisor to develop a withdrawal strategy. If you want or need to continue working in retirement, you can also include any part-time income you expect to receive for the first few years of retirement.

Make your retirement budget.

Figure out how much you plan to spend during retirement. This can help you get a handle on whether or not you actually have enough money to retire in the coming year.

One good exercise is to figure out the absolute minimum you need to get by. This means paying essential bills including health care expenses, clothing, food, transportation and other essentials. Then, determine your ideal retirement budget. If you could have the retirement you really want, how much money would that take? This lets you add in things like dining out, traveling and other luxuries.

At a minimum you should be able to cover your bare bones budget indefinitely. But it’s better to delay retirement until you can afford the lifestyle you want. Working an extra year or two might help you to finance a more enjoyable retirement.

Check into your investments.

As you approach retirement, it’s a smart time to double check your portfolio allocation. You should be shifting your money into lower risk, lower reward investment options, such as bonds. You can still take some risks, if you can stomach potential declines in your investment portfolio. Just be cognizant of how a downturn in the market could affect your retirement plans.

Figure out your health insurance.

If you are 65 or older you may qualify for Medicare, but you should also look at supplemental insurance policies you might need. If you don’t yet qualify for Medicare because you’re retiring early, be doubly sure you have enough cash flow to cover an individual health insurance policy.

Use your paid time off.

Check into your bank of vacation time or paid time off. You should definitely use this before you retire, unless you can translate those banked days into cash at the end of your working years. If you plan to look for a new place to live in retirement, that’s an especially good use of any banked time off you have available.

Make a plan for your time.

Figure out what you plan to do with your time during retirement. The transition from working every day to a life of leisure can be surprisingly emotional. The best way to fend off boredom and depression is to stay active physically, mentally and socially.

Take some time now to plan a retirement celebration, vacation or to find some volunteer opportunities you can step into as a retiree. This will help smooth the transition into your golden years.


To figure out whether you have enough money to retire, you need to estimate how much income your savings will produce and whether that's enough for you to live on. There are a few different methods you can use to figure that out:

  • You can shop for annuities. While annuities can sometimes come with high fees, they can also provide guaranteed income during retirement. If you want to make sure you don't run out of cash, see how much an annuity purchased with your current savings -- from a reliable insurer -- would provide you in retirement income. The type of annuity best suited to retirement planners is typically a deferred fixed annuity, which, starting on some future date that you've chosen, will start paying you a fixed amount of money at regular intervals (usually once a month).
  • You can use a percentage-based rule. One common method of finding your retirement savings target is the 4% rule, which says you won't run out of money if you withdraw 4% of your savings in the first year of retirement and increase withdrawals for inflation in subsequent years. Unfortunately, this rule doesn't hold up in a low-rate market, and a 2013 study found there's a 57% chance the 4% rule will leave you broke. To make sure this doesn't happen, start with a rate of 2.5% to 3% instead. If that withdrawal rate looks like it would cover your expenses and keep you from going broke, then your nest egg is likely big enough.
  • You can use IRS Required Minimum Distribution (RMD) tables. RMD tables specify the amount of money you must withdraw from tax-advantaged retirement accounts each year, starting at age 70 1/2. The IRS withdrawal calculations are based on average life expectancies, and they rise with age. While the IRS tables start at age 70, the Center for Retirement Research used the IRS tables to calculate an appropriate withdrawal rate starting at 65. The CRR recommends this method over the 4% rule because it's more responsive to market fluctuations.

Try each method and choose a conservative withdrawal rate, and then set up a retirement budget to see if you can live on that income. Your budget should account for all of your expenditures, including housing, healthcare, travel, utilities, food, gifts, and other costs. Use your current spending to get an idea of how much you'll spend on fixed and optional expenditures in retirement and make adjustments based on how you plan to change your lifestyle.

Keep in mind that while you may expect to spend less during retirement, around half of all senior households spend more in the first two years of retirement, and for one-third of seniors, spending is still higher six years later. If you aren't sure you can live on your planned retirement budget, try it for a month or two while you're still working.

If your income from all sources, including investment withdrawals, Social Security, and pension income, gives you enough to pay for your costs as determined by your budget, and perhaps a little extra, then 2018 may be your year to retire.

Will you claim Social Security -- and how much will get you get?

Retiring doesn't necessarily mean claiming Social Security benefits right away -- but it often does, since most Americans rely on Social Security as a major source of retirement income.

If you'll need Social Security benefits, determine how claiming in 2018 will affect the benefits you receive. The key question is whether you've reached your full retirement age. Full retirement age (FRA) varies based on your birth year; it's 66 if you were born between 1943 and 1954 and gradually moves up to 67 if you were born in 1960 or later.

If you retire before FRA, your Social Security benefits will be reduced by 5/9 of 1% per month up to 36 months early, and by an additional 5/12 of 1% per month beyond 36 months early. You can claim retirement benefits as early as age 62, but your income will be considerably lower than it would be if you waited until FRA.

RELATED: Top 10 cities where retirees are moving

Top 10 cities where retirees are moving
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Top 10 cities where retirees are moving

10. North Las Vegas, Nevada

North Las Vegas is a newcomer to our top 10. One appeal for retirees living in North Las Vegas is how tax-friendly Nevada is for retirees. Social Security income and withdrawals from retirement accounts are not taxed. And if you plan on earning during retirement, the marginal state tax rate in Nevada is 0. Unfortunately, if you are a retiree in North Las Vegas who wins it big on the slot machine there will be some taxes to pay. The city also has great weather thanks to being in a desert.

Net migration: 929

(Mitchell Funk via Getty Images)

9. Cape Coral, Florida

Waterfront Wonderland is once again a popular destination for retirees. Last year Cape Coral ranked second while this year it ranked ninth. In total Cape Coral gained 949 retirees, with 1,926 immigrating and 977 emigrating.

Cape Coral was also the second-biggest beneficiary of Florida’s growth in retirees. What is interesting is that while a large chunk of Arizona retirees went to the Phoenix metro area, retirees coming to Florida tended to be more dispersed. Overall Florida had the largest gain in retirees but had only two cities crack our top 10.

Net migration: 949

(Joe Raedle via Getty Images)

8. Gilbert, Arizona

Gilbert is the final Arizona city to crack our top 10. Like Chandler this city is great for golfers. According to Census Bureau data, there are around 150 golf courses in the area. Retirees can also appreciate how safe Gilbert is. FBI data shows there are only 1,320 property crimes per 100,000 residents.

For the retirees looking to escape the cold, especially those coming from the Northeast, Gilbert is a great option. There are only 16 rainy days per year and the average daily high temperature is 87.

Net migration: 1,002

(jrmetcalf via Getty Images)

7. Peoria, Arizona

Peoria is a large suburb to the north of Phoenix. This city saw an increase of 1,310 retirees, with 1,839 arriving and 529 leaving. Peoria has seen stunning population growth in the recent past. In 1980 the population was only 12,171, while in 2016 it was 164,172.

For seniors who love baseball Peoria may be a good spot to settle. The Peoria sports complex is the spring training home of both the San Diego Padres and the Seattle Mariners.

Net migration: 1,310

(Greg Thomsen via Getty Images)

6. Overland Park, Kansas

Overland Park saw a net increase of 1,330 retirees. Kansas as a state only saw a net increase of 1,357, meaning that for retirees Overland Park was the star destination. Overland Park is a great bargain for retirees. Housing is relatively affordable, costing only $123.50 per square foot, according to Zillow data. In fact, according to our projections Overland Park is one of the most undervalued cities in America.

Net migration: 1,330

(Bloomberg via Getty Images)

5. Chandler, Arizona

Retirees are coming to Chandler in droves. Census Bureau data shows that 1,718 retirees immigrated to Chandler while only 260 emigrated. One reason they may be coming is the golf. Chandler is one of the best cities in the country for golf, thanks to its hot, sunny weather and abundant golf courses. Of course, the low cost of living and tax benefits Arizona provides probably doesn’t hurt.

Net migration: 1,458

(Richard Cummins via Getty Images)

4. Phoenix, Arizona

Phoenix is the second of five Arizona cities in the Phoenix metropolitan statistical area to crack our top 10. The Valley of the Sun, as far as big cities go, is relatively affordable, especially when it comes to paying for housing. According to data from the Census Bureau, the median monthly housing cost is only $993.

Phoenix actually saw some of the most churn when it came to retirees coming and going. Just over 4,100 retirees left the city while over 5,600 arrived. For both those metrics Phoenix ranked first in the top 10. In fact only Chicago and New York had more retirees emigrate than Phoenix.

Net migration: 1,470

(Davel5957 via Getty Images)

3. New Orleans, Louisiana

New Orleans is something of a surprise inclusion in this year’s top 10 since it did not even crack the top 25 in last year’s study. But it’s not too hard to see the appeal. New Orleans is a warm city on the coast with plenty of cultural activities to enjoy. Another factor attracting retirees may be the famous food scene in New Orleans. Overall the Big Easy saw an increase of 1,520 retirees coming into the area.

Net migration: 1,520

(picturist via Getty Images)

2. Jacksonville, Florida

Jacksonville is the largest city in Florida and saw a large influx of retirees moving into the city. Overall 1,817 emigrated while 3,761 immigrated, leaving the city for a net gain of 1,944.

One major reason why retirees love Jacksonville, and Florida in general, is how tax-friendly it is. In past studies we found that Jacksonville is the third-lowest taxed city in the country. It is also a good option for retirees who still want to live in the big city but keep costs low. We estimate that the average Jacksonville retiree would need about $62,470 in annual retirement income to live comfortably. That figure is much lower than other big cities.

Net migration: 1,944

(MichaelWarrenPix via Getty Images)

1. Mesa, Arizona

Mesa is a city in the Phoenix metropolitan area. Last year, Mesa led all cities with a net gain of 2,565 seniors. In this year’s study Mesa also ranked first with just over 3,400 more seniors immigrating to Mesa than emigrating. Mesa is attractive to seniors because of its weather. The sun is almost always out and even in the dead of winter, it never gets that cold. The average low in December, for example, is only 40 degrees.

Net migration: 3,442

(Terryfic3D via Getty Images)


For example, if your FRA is 66 and you file at age 62, then you'll be 48 months ahead of schedule, and thus your monthly checks will be cut by 25%:

(36 months x 5/9 x 1%) + (12 months x 5/12 x 1%) = 25%

By contrast, benefits keep going up until age 70 if you delay claiming after FRA, and recent research suggests you should wait until 70 to max out your benefits, as Social Security is the optimum source of retirement income: It's guaranteed for life, and you get a substantial return for delaying benefits.

If you've not yet reached FRA, calculate how much income you'd be giving up by claiming Social Security early. Decide whether it's worth it or whether waiting a little longer is a better approach.

What will you do about healthcare costs?

If you're retiring at 65 or later, you'll likely be eligible for Medicare. Unfortunately, if you're counting on Medicare to cover all of your costs, you're in for a big, unpleasant surprise.

There are many different kinds of care Medicare doesn't cover, ranging from nursing home costs to vision care to hearing aids. Seniors also face costly premiums and coinsurance expenses. In fact, the Employee Benefit Research Institute recently estimated that a senior couple with Medicare and Medigap might need around $370,000 to have a 90% chance of covering healthcare costs in retirement.

If you don't have a health savings account or other source of healthcare-dedicated savings, you may not be ready to retire until you've figured out a plan.

And if you're under 65, your healthcare situation may be even worse. While you may be able to temporarily stay on your employer's policy under COBRA, the price will likely be much higher once you retire and your employer stops paying premiums.

Subsidized coverage may be available through Obamacare, and you cannot be denied coverage. However, if you don't qualify for income-based subsidies, you may face high premiums -- especially since the repeal of the individual mandate is expected to cause prices to go up.

What will your tax situation look like?

Just because you've left the workforce doesn't mean you're done paying taxes. If you take money out of your retirement accounts, your withdrawals will be taxed as ordinary income, unless your money's in a Roth 401(k) or Roth IRA.

It's important to calculate what your taxes on your retirement income will likely be and how your budget will be affected by your tax liability. This is especially true as tax reform passed at the end of 2017 and likely changed both your tax rate and the tax deductions you're entitled to claim.

You'll also need to determine if your income is high enough that you'll be taxed on Social Security benefits. You could be taxed on anywhere from 50% to 85% of your benefits by the federal government, and your state may charge taxes as well.

If your tax bill reduces your income substantially, will you still be able to live comfortably on the amount you'll earn from retirement accounts and Social Security? If not, 2018 isn't your year to retire.

What will you actually do during retirement?

Finally, you'll need a plan for how you'll spend your time during retirement. Retiring can be detrimental to your health if it causes you to lose social connections, so be sure you have a plan to stay connected with your community.

Is 2018 your year to retire?

So now you've answered the key questions that will help you decide if you should retire in 2018.

If 2018 is your year, congrats! Just be sure to keep making smart money moves in retirement so you can protect your nest egg and not have to worry about running out of money later in your life.

If you've decided 2018 isn't the right time to retire, try out some of these tips to increase your retirement savings or find ways to cut costs in retirement so you'll be able to leave the workforce sooner rather than later.

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