Figuring out when to retire used to be less complicated. In the good old days, you worked until you were age 65, diligently saved, and retired with a pension that would see you through your golden years.
Today, retirement is no longer a one-size-fits-all proposition, and many Americans face financial challenges when deciding on the right time to retire. For example, your financial situation, job satisfaction, lifestyle preferences, and general health are all important factors to consider.
Whatever your feelings about how you'll spend your time or where you'll live, the first step to understanding when you can retire is to evaluate your financial situation and some of the factors that may influence it. These include:
Longer life expectanciesWith many of us living longer, you may need to fund a retirement that could last 20 or 30 years. This means you'll need to last longer.
Rising health care costsThe financial burden of health care keeps rising for retirees, even with Medicare. Today, preparing for health care costs has become an essential part of retirement planning. You should factor in costs, not only for insurance premiums but for out-of-pocket expenses such as deductibles, copays, and prescriptions.
Money managementWith 401(k) plans more prevalent as retirement savings vehicles, you'll most likely manage your own retirement assets, unlike the days when company pension funds did the work for you. For this reason, you may want to consider consulting a financial professional who can help you understand your options and how to allocate your assets in order to better meet your retirement goals.
Once you've considered these factors, you can begin to get an idea of where you stand financially by using a retirement calculator. There are many different calculators to select from that take into account your age, salary, current assets, and even estimated Social Security benefits. Forbes lists three excellent retirement calculators but there are many available and it is important to understand how they are factoring the calculations to ensure they meet your needs.
The amount you have already saved and the amount you plan to save each year going forward will determine how much money you are likely to have when you retire and how many years it will take you to get there. If the numbers aren't where you need them to be, then consult a financial professional.
As you near retirement, you don't have as much time to recover from market losses should they occur. For this reason, it is important to carefully consider your investment risk tolerance before making any investment decisions.