Financial Planning Experts: 5 Signs You’re Ready To Retire in 2024
You might have the guest list for your retirement party already planned. You might even be thinking about the location for your first celebratory vacation (look out Hawaii, here you come!). But are you financially prepared to drive off into the sunset of your working life (or at least take that flight to Honolulu)?
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To help you determine whether your wallet has reached your heart in terms of retirement preparedness, GOBankingRates spoke with Jacob Sadler, CFP, founder and senior advisor at Curio Wealth. We also touched base with Taylor Kovar, CFP, founder of 11 Financial and CEO of The Money Couple, and Elizabeth Pennington, CFP, senior associate at Fearless Finance.
You’re Planning for Longevity
While many people don’t necessarily imagine blowing out birthday candles well into their 90s, being prepared to do just that is a great place to start for retirement planning.
Of course, not everyone will live to 90. But Sadler encourages you to have a general idea of what your life expectancy might look like, since “without that information, planning for retirement becomes an exercise in managing uncertainty.”
Though pondering your mortality isn’t exactly the most popular activity, if you’re thinking about retiring, you need to ask yourself if you would run out of money should you live 10 or 15 years past your actuarial life expectancy. With people living longer than they have in previous generations, the prospect of a retirement that lasts 20 or 30 years isn’t so far-fetched.
“When you are on the verge of retirement, it is hard to say that you are truly prepared unless you have enough savings to allow you to live comfortably into your 90s,” Sadler said.
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You’re Diversifying Income Streams
Though you’ve become accustomed to having a regular paycheck as a primary source of income during your working years, retirement requires being creative about how you bring in money.
According to Kovar, one major sign of having a solid financial foundation for retirement is that you’re doing more than simply focusing on your savings. You should also have a broader strategy for income in retirement, including Social Security, pensions and other investments.
Ensuring that your investment portfolio is healthily diverse is another way to start retirement off right. Ideally, you should have a mix of things like stocks, bonds, real estate and possibly retirement accounts such as IRAs or 401(k)s.
You’ve Met With a Financial Planner
When Pennington sits down with a client who is considering retirement, she takes a holistic look at that client’s financial situation, casting a keen eye toward the moving parts.
“Retirement is the biggest financial decision a person will make. Full stop,” she said.
That’s why she insists retirement readiness should include a meeting with a financial expert.
Working with a fiduciary professional can help you become aware of shifts in your anticipated cash flows and more fully understand your potential retirement income streams. In conversations with a trusted advisor, you can adjust your retirement investments for this phase of drawing down your assets. Crucially, you can plan your spending so that you’ll have money left over for long-term care, should you need it.
You’ve Stress Tested Your Plans
The first five years of your retirement will prove an especially important time for monitoring your investment returns alongside the amount you withdraw from your portfolio. Sadler emphasizes that retirees can take on long-lasting damage financially if they encounter a series of poor returns early in retirement, without making reductions in their withdrawals from the portfolio.
He advises you to stress test your investment plans before you retire, so you can understand how you’d be impacted by a sequence of poor returns. Completing these stress tests lets you know what kind of adjustments you’d need to make in your spending to successfully weather a turbulent market.
You’re Financially Prepared for Medical Needs
Of course, you want to imagine the healthiest, happiest retirement possible — after all, you’ve earned it. Unfortunately, sometimes, you’ll experience sudden medical emergencies or even a need for long-term care. Making sure you have the resources to afford quality care is a cornerstone of preparing for your retirement.
“Being ready to retire also means having a plan for healthcare costs, which may involve Medicare if you’re 65 or older, or another health insurance plan if you’re retiring earlier,” Kovar said.
Sadler said, “If you’re about to retire, you likely have a laundry list of financial goals you’re excited to pursue, and planning for six-figure medical bills at an advanced age is usually not on that list.”
Still, retirees should factor in the significant costs of long-term care when considering how they spend money in retirement.
Performing another stress test on your financial plans to assess whether you can take on hypothetical expenses around short and long-term care helps you balance more pleasurable spending with the risks of the unknown.
Sadler said, “To truly find the comfort and enjoyment of spending money early in retirement, it is important to know that what you are spending on today won’t jeopardize your ability to spend for what you need in the future.”
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This article originally appeared on GOBankingRates.com: Financial Planning Experts: 5 Signs You’re Ready To Retire in 2024
