There’s a pretty good chance that your parents and grandparents retired just because they turned 65. Today’s retirement is a bit more complicated than that.
While age is still an important factor, your ability to connect your financial resources to your lifestyle goals is what will truly determine if you’re ready to retire.
Here are three important markers to cross before you crack open your nest egg:
1 – You’re financially ready.
The most common question we get asked is, “How much do I need to retire?”
While there’s no magic number to hit, a few key checkpoints are:
You have a budget. Many clients preparing to retire tell us they’ve never kept a budget before.
Time to start! If you have any big plans for early in your retirement, like remodelling your home or a dream holiday or two, let us know so we can discuss front-loading your annual withdrawal rate.
Your debts are paid. You don’t necessarily need to pay off your outstanding mortgage before you retire, but with the base rate having risen to 5% (with potentially further rises to come), it should be considered.
In general, it makes sense to reduce or eliminate credit card balances and any other loans that are charging you interest.
Your personal and state pension forecast are all factored in (UK & IOM). If you plan on retiring early, be sure of how much your personal and occupational pensions will pay.
Often statements show the estimated income as at a certain date, age 60, for example, and if you’re retiring before that, it is highly likely to be less.
Also, keep in mind that your state pension age may have increased. Can you afford to live without this until age 67 or 68?
2 – You’re emotionally ready.
We spend so much of our lives working that our jobs become a large part of our identities. Rediscovering who we are once we stop working can be a major retirement challenge.
To prepare for this emotional transition:
Make a list. What are the things you’re passionate about? A skill you’d like to develop? A cause that’s important to you?
Also, talk to your spouse or partner, if you have one, to ensure you’re on the same page and imagining at least a similar version of the future.
With a picture of what retirement might look like, we can determine how we fund it.
Prepare to see your net worth reduce. We spend the majority of our lives trying to accumulate wealth and sufficient assets to fund our future lifestyle, and potentially support our family’s too. We are looking for that bottom line to increase year on year.
We assume a larger number equals success. However, this is flipped on its head in retirement, and that can be hard to take.
Drawing on capital and pension pots, spending investment income rather than reinvesting it or potentially swapping that hard-earned lump sum for an annuity income for life can be a major psychological hurdle to clear. We can help!
Check that your estate plan is in order. Understandably, many people avoid this part of their retirement planning, but ensuring you have a Will and Power of Attorney in place can have tremendous emotional benefits.
The peace of mind that comes from knowing the people you care about are taken care of can empower you to worry a little less and enjoy your retirement more.
3 – You’re ready to do new things.
Ideally, the financial piece of this conversation should make you feel free enough to create a new retirement schedule based on the emotional piece i.e. the important things in life: happiness, people and passions.
Plan your days around what gets you out of bed in the morning. Some ideas:
Work at something you love. Take a part-time ‘hobby job’ or start a business doing something that interests you. Consult. Teach. Volunteer – I speak from experience as a Vagabonds RUFC committee member, that clubs and charities hugely appreciate the skills that those with a lifetime of experience can bring to the table.
Keep learning and having fun. Have a go at a new language by enrolling in an online course or via an app. Attend an e-marketing/social media course to showcase your photography portfolio or create an online shop for your crafts. Sign up for cooking classes and get some new meals in your weekly meal plan.
Travel. Planning out a big holiday can be a fun project. And, while you’re looking forward to that dream trip, take a few weekend jaunts, whether it be to go and see a show or exhibition or even a stay-cation on the island. The North Coast 500 is already on my list.
If you’re nearing retirement and struggling with these issues, working through some of these with us might provide some clarity.
Let’s discuss how we can help get you ready for the best retirement possible with the money you have.