Am I ready for retirement?
When clients first ask this question, they usually assume it is a financial one. In some regards, it is; you do need to be financially prepared in order to retire responsibly. However, there is also a significant emotional aspect to this question. Not everyone is emotionally and mentally ready to retire, even if their finances are in good order.
Certified Retirement Counselors are trained to talk clients through both the financial and the emotional sides of retirement and retirement planning. So, when a client comes to us wondering if they are ready to retire, we are prepared to dig deep. We don’t just discuss finances. We also discuss lifestyle, mental health, relationships, and personal meaning. Below, we’ll take a closer look at the key emotional and financial factors to consider as you approach retirement.
The Emotional Side Of Retirement
When you’ve been getting up early and spending long days at the office for many years, you really start to look forward to the “break” that retirement represents. However, retiring is very different from taking a long vacation or a sabbatical. It is a permanent life change, and adjusting to the change is often harder than expected.
If you are a dedicated, highly compensated member of your company or firm, you probably derive a great deal of satisfaction and worth from your job. When you retire and are no longer the one solving complex problems and keeping the wheels turning, you may experience a loss of self-worth and identity. Most people experience these difficult emotions when they retire. It’s not so much a matter of avoiding them, but rather a matter of being prepared for them and having plans in place to deal with them.
There are also some other lifestyle difficulties that may come up when you retire. If you are married, you can expect to spend more time with your spouse when you retire. How will the two of you spend that time? Are you prepared to spend more time together, and will you get along when you do so? Most people need space to develop a new identity when they retire, and balancing this need for space with your relationship can be challenging.
Emotional Questions To Ponder
As Certified Retirement Counselors, we don’t tell clients if and when they are emotionally ready to retire. Rather, we are trained to ask questions to help clients decide for themselves whether they are mentally ready for this big change. In talking through the answers to these questions, some clients realize they are more ready to retire than they thought. Others realize they have a little more planning and prep work to do before they turn in their retirement paperwork.
Keep in mind — you don’t always need to have the perfect answer to every question your retirement counselor asks. You do, however, want to have thoroughly pondered the question and thought through various solutions. Everyone experiences retirement differently. What’s most important is that you’re aware there will be some challenges, and you’re confident you can meet those challenges head-on when they do come up.
So, what emotional questions should you begin to ponder as you approach retirement age? Here are a few important ones:
Have you accomplished what you wish in your current career?
You don’t want to retire thinking that you were just months away from achieving what you’ve always dreamed of. Think back over your career, and ask yourself if you were to retire right now, whether you would be happy with all you accomplished in your field. If there’s still some big goal that you want to chase or some metric you feel driven to meet, then you may not be ready to retire yet. You want to feel accomplished and successful when you retire, not like you gave up too soon.
What do you plan on doing when you retire?
There may be a few people who are truly happy to sit on their sofa and watch TV each day after they retire. Most people, though, need a bit more in their life in order to feel worthwhile and validated. As such, it’s a good idea not to retire until you have plans to do something else. Some people travel. Others take up a time-consuming hobby, like horseback riding or gardening. Still, others open their own business in a completely different field from the one they worked in previously.
There’s no right or wrong answer here. But it is important to have something else driving and motivating you before you give up your day job.
How will you and your spouse navigate this change?
Before you retire, it is very important to have some conversations with your spouse about what it will be like for you to be home more often. Even the strongest and most established relationships can change when one or both partners retire.
Talk about how you’ll divide the housework after retirement. Will you take over more duties now that you are at home? Also, talk about how you plan to spend your time together. If you expect to go out and partake in fun activities more often, is your spouse on the same page?
If you plan on pursuing a new hobby or endeavor in retirement, make sure your spouse is on the same page and is supportive. They may be looking forward to having you home all the time, while you’re looking forward to spending all your time at the local gym!
Where will you live?
In some regards, this is a financial question, since where you live will affect how much money you need in retirement. But this is also an emotional question. Up until this point, you have probably lived where your job dictated. Now, you need to think about where you would prefer to live after your job is not a factor. Maybe you want to move closer to certain family members. Or perhaps there’s a different city or even country you’ve always wanted to move to.
Having a plan for where you’ll live can help guide your retirement experience. Some people decide on new hobbies based on their change in location. Others use their change in location to strengthen existing relationships or forge new ones. If you are struggling to figure out the emotional side of retirement, deciding where you want to live can be a great starting point. The pieces often fall together from there.
The Financial Side Of Retirement
In addition to being emotionally ready to retire, you do need to be financially prepared for this change. And actually, the two are more related than you might think.
Do I have enough money to retire?
This is much more than a “yes” or “no” question. Yes, there are calculations your financial advisor can do to determine whether you have enough money to pay your bills and support yourself in retirement. But as Certified Retirement Counselors, we dig a little deeper.
We want to get a full and complete picture of your financial situation, and we want to make sure you have enough money to live as you wish when you retire. That’s quite different from simply being able to keep the lights on. If you retire too soon and without an adequate financial cushion, this can make facing the emotional side of retirement a lot harder.
Financial Questions To Ponder
As with the emotional side of retirement, we like to ask questions to help clients determine whether they are financially ready to retire as they wish. The answers to these questions can help your financial planner determine how much money you need to retire, too.
Where do you want to live?
After exploring where you want to live on an emotional level, think about how your possible move will affect your cost of living. If you plan on moving to a city with a lower cost of living, you may not need to save quite as much for retirement. If you plan on moving halfway around the world, maybe you need to save a little more.
Most people have considerable equity in their homes by the time they retire. So, whether or not you plan on selling you home also affects your financial position.
Are you old enough to collect Social Security?
You can start collecting Social Security, at a reduced rate, at the age of 62 — but you have to wait until age 66 or 67 to receive full benefits, and you’ll receive even more if you wait until age 70. So, in this way, your age affects your financial position and plays a big role in whether you’re ready to retire. Some people figure they have enough to retire, but they fail to consider they’ll be without Social Security benefits for their first few years of retirement.
Do you plan on working in retirement? Does your spouse?
Some people retire because they want to pursue another money-making endeavor outside of their careers. If you or your spouse are in this situation, that needs to be considered as you plan your retirement. Sure, you may never make a full-time income selling flowers, baking cakes, or training dogs in retirement. However, if you earn even a few hundred dollars per month from your retirement “gig,” this can improve your financial situation and make it possible for you to retire sooner.
Keep in mind: retiring early to pursue another money-earning passion is quite different from retiring early and then having to work because you were not truly financially prepared to retire.
Are all of your old 401(k) accounts accounted for?
So many people have old 401(k) accounts from previous jobs. They’ve lost track of these accounts over the years, perhaps because of a change in address or simple forgetfulness. Before you decide to retire, it’s important to recover these accounts. We generally recommend consolidating them into an individual retirement plan so we can get a better idea of how much you truly have, all together.
You may not think that a retirement account you contributed a few hundred dollars to 20 years ago is important, but due to compounding interest, even small accounts can grow quite large over the years. A 401(k) you forgot about may actually be the thing that makes it possible for you to retire earlier.
So, are you ready to retire? That’s definitely a nuanced question and one that’s worth discussing with a Certified Retirement Counselor. There are a lot of emotional and financial questions to work through as you make this important decision, and a retirement counselor is prepared to guide you as you seek answers. Contact RLJ Wealth to schedule an appointment at your convenience.