6 Signs That Can Tell You if You’re Financially Ready to Retire


Do you find yourself thinking about retirement with just as much fear as excitement? If so, it’s not at all surprising; workplaces seem to be full of stories about people who stop working too soon and find themselves in dire financial straits during their retirement years. In fact, according to the 2020 Transamerica Retirement Survey of Workers (an annual study now in its 20th iteration), the possibility of outliving savings and investments is the most common retirement fear, with 40 percent of American workers citing this as their top concern.

Fortunately, there are plenty of signs that can help you determine whether you are financially ready to retire. As you think about the timeline for your retirement, note how many of the following points apply to you to give you a more accurate idea of just how prepared you are to stop working.

1. You’ve reached full retirement age.

Even if you’ve done very little retirement planning, you’re probably aware that the age at which you retire is directly connected to the amount of Social Security benefits you’ll be entitled to. Although you can begin receiving Social Security benefits as early as age 62, you aren’t eligible to receive your full Social Security benefit until you’ve reached what is known as full retirement age (this is age 66 for workers born between 1943 and 1954 and 67 for US workers born in 1960 and later). If you do choose to claim your benefits early, the monthly benefit you’ll receive will be up to 30 percent lower than the amount you’d be eligible for at full retirement age—a significant reduction that can have big implications for your retirement finances.

2. Your debts are paid off.

One of the most important things you can do to set yourself up for a financially secure retirement is to pay off most or all of your debt before you stop working. Things like mortgage payments, car payments, and credit card interest can eat into a fixed income fairly quickly, not to mention the fact that these debts reduce the buffer you have available to deal with any unexpected financial emergencies.

3. You’re not financially supporting a dependent.

If you’re providing financial support to your children, parents, or both (15 percent of middle-aged adults fall into this last category, according to Pew Research Center), it may not be financially feasible for you to stop working just yet. A financially secure retirement assumes that, to a certain extent at least, you’ll be able to downsize and reduce some of your costs. However, this is extremely difficult to do if you’re responsible for expenses like college tuition for one or more kids or health-related costs for elderly parents. Furthermore, retirement plans tend to focus on individuals or couples only, and they don’t typically take into account the need to provide financially for other parties.

4. Your current income is (more than) enough for your needs.

Unless you’re extremely well prepared for retirement, your income is likely to take a hit as soon as you stop working (as suggested by many retirement planners and financial advisors, a good rule of thumb is to expect your retirement income to be about 75 percent of your working income). The assumption here is that this reduced income will be offset by the corresponding loss of other costs, such as retirement plan contributions, saving for a child’s education, or commuting. However, if you find that your current income is only just adequate for your needs, you may not be able to make ends meet effectively when that income is reduced by 25 percent, even if some or all of those previously mentioned costs are eliminated.

5. You don’t foresee any major expenses in the near future.

Retirement planning is all about thinking ahead, so it only makes sense to hold off on retirement until you’ve addressed any major anticipated expenses. For example, does your home need a new roof? Are you thinking about purchasing a vacation home or a new car? It’s best to deal with these kinds of expenses before, rather than after, you stop working. Larger expenses can add up quickly, and if you’re withdrawing funds from taxable accounts to pay for them, it can have a significant impact on your portfolio that can, in turn, affect your retirement income.

You and your spouse are on the same page.

If you have a spouse or partner, your retirement will have just as big an impact on them as it will on you. It’s therefore essential to share your plans with your spouse and have an open conversation about what your retirement will mean for you both, particularly in financial terms. Points that are helpful to discuss together include how your spouse will be affected by a reduced income, whether your spouse will need to work longer to cover household expenses, and what your spouse’s own plans are for retirement.

Published by Robert Ryerson

A financial professional with more than three decades of experience, Robert Ryerson works closely with clients in the Freehold, New Jersey, area to meet their financial planning needs. As a Certified Financial Planner (CFP) at New Century Planning, he focuses on retirement income planning, as well as estate administration, regularly assisting his clients with legacy and estate planning. He also advises them on health and disability insurance, including Medicare, Medicaid, and Medicare Supplement Plans. Mr. Ryerson’s many years helping his clients navigate the complexities of retirement planning gave him a deeper understanding of the healthcare costs that retirees face. In 2013, he drew upon this knowledge to co-author the book What You Don’t Know About Retirement Will Hurt You. Outside of his work at New Century Planning, Robert M. Ryerson is a regular fixture at workshops and seminars on retirement. He has delivered several keynote speeches on the often-confusing topic of required minimum distributions. Mr. Ryerson continues to share his financial expertise as a facilitator of online courses for Certified Public Accountants through The Society for Financial Awareness. In the early 2010s, Mr. Ryerson became concerned about the threat of identity theft after noting the many cybersecurity breaches suffered by major companies. He became a Certified Identity Theft Risk Management Specialist (CITRMS) in 2014. He has since taught identity theft recovery courses at local community colleges. Mr. Ryerson also wrote a book on the topic entitled What’s the Deal with Identity Theft: A Plain English Look at Our Fastest Growing Crime. A graduate of Rutgers University with a degree in economics, Mr. Ryerson began his career in the financial services industry as a stockbroker. He obtained his CFP designation in 1991 and began working as an independent financial planner a few years later. In addition, he is a notary public.

%d bloggers like this: