Retirement means that your days of waking up to prepare for a grueling 9 to 5 day have finally subsided, and more relaxing days are ahead. And while you may be more than emotionally and physically ready to embrace this milestone, you may need to be financially prepared to afford to discontinue working for the rest of your life.
To make sure you’re ready to enter into a new phase of retirement without potentially falling into debt and suddenly having difficulties paying for household necessities, you can take steps to find out where you are financially with financial help from financial advisors.
Here are the 5 signs that should indicate to you that you’re not financially prepared to retire just yet.
1. Unsure of you’re current financial situation
If you’re unsure where you’re current financial situation is, you might not be ready for all that is financially required of you to retire. Thoroughly understanding your personal finances means knowing how much money is allotted for personal reasons, like for emergencies and living expenses, but if this information is murky for you, you could be in for a surprise when you retire and realize you don’t have as much money saved up as you initially assumed.
Before even considering whether you’re able to retire, ensure that you have comprehensive knowledge of every aspect of your personal finances, including an estimate of much you’ll need to retire and your predicted expenses for the next few decades.
2. Struggling to pay bills
It should become fairly overt that you’re not ready for retirement if you’re having significant difficulties paying your bills with each paycheque you bring back home. Paying your bills will only become much more of a challenge when you retire, and a portion of your monthly income has been diminished.
Typically, as a rule of thumb, retirees will require about 75% of their income to have a comfortable retirement and to continue to pay their bills without issue. Resources, such as IRAs, Social Security, 401(K)s, and a pension plan will be a direct contributor to your retirement income.
Still, sometimes they may not be enough to freely enjoy your retirement, particularly without an extensive amount of savings and an emergency fund to fall back on if ever necessary.
3. Retirement income
When you have yet to configure your retirement income and how substantial it will be, this could be another indication that you’re not financially ready to retire. More so, you’ll need to accurately calculate the amount of money you’ll need to supplement your lack of income, which will soon become explicit when monthly bills and expenses continue to circulate.
Once you figure out your exact retirement income, you should make sure you can live on that retirement income without ever coming up short with insufficient funds. Doing a test run of paying your bills, paying for everyday expenses, and other miscellaneous purchases you need with the calculated retirement income is recommended. If it’s feasible to live comfortably on the calculated income after doing such a test, retirement could be more imminent than you realize.
4. Substantial debt
A determining factor on whether or not you can and should retire depends on the amount of debt you have accumulated and have yet to pay off over the course of a lifetime. Going into retirement with a load of personal debt is not an ideal situation and can erode what money you have saved during this new phase in your life.
Working with a professional financial advisor, you can immediately begin to strategize how to minimize your debts before you go into retirement to ensure this milestone begins without a hitch, so you can avoid paying for debts and diminishing the money you have planned for other retirement-based activities.
5. No long-term financial plans
Methodically planning for your retirement is a must before you officially settle into this lifestyle, as unexpected events can completely wipe out your nest egg. Because of this, you should work with a financial advisor to curate emergency funds and place an allotted amount, based on your expenses for months in advance, in another account.
Occurrences, like medical emergencies and living far past what you expected, will increase the amount of money you put out each month. These events need to be considered when retirement is on the horizon.
No matter how comfortable you think you are for retirement in your present situation, it all means very little if your financial plans do not extend to long-term solutions.