How to Determine When You Can Retire

It doesn’t matter how much you enjoy working and what you do for a living, there are probably some days where you wish it was time to retire. Right? Work can be difficult, and it can make you long for retirement days. Most of us feel that way at some point in our working lives.

But when can you actually retire? When is the right time?

Like most answers when it comes to retirement, it depends. Basically, it comes down to how much income you’ll have in retirement, including the money you have saved up over the years. To determine if you’re ready, there are several things you should do and think through. Here are three: 

1. Calculate Your Expected Retirement Expenses

It’s time to do some addition. To help evaluate when you can retire, you first have to determine how much you’re planning on spending each year in retirement. It’s said that you should be ready to spend about 75 to 85 percent of your current income, because you won’t have to pay for things like payroll taxes or retirement savings. 

Calculating your future expenses means considering your monthly bills, daily living expenses, and even things like health care expenses and traveling. Don’t leave anything out. This can take some time, but it’s worth it. 

2. Know Your Retirement Income

After you know your expenses, it’s time to look at how much income you’ll have in retirement. Your retirement income comes from your Social Security, retirement accounts such as IRAs or 401(k)s, investments, pensions, and annuities. But some of these income methods are guaranteed, and some of them aren’t. 

Guaranteed income means that the payments will always be the same amount, no matter how long you live. These generally include Social Security, pension plans, and annuities. The rest of your income (that’s not guaranteed) is likely to fluctuate or change, but you can still factor it into your expected retirement income, which we’ll talk about next.

3. Make Sure Your Retirement Income is Greater Than Your Expenses

If you want to see if your guaranteed income could cover all of your expected expenses (say that five times fast), then take your anticipated monthly guaranteed income and subtract it from your essential monthly expenses. What’s the result? If you expect to receive $1,500 a month in Social Security, but you have $2,500 in monthly expenses, then you may want to create more guaranteed income by moving money into something like an annuity. 

The same can be done for your annual expenses and retirement income, with the goal of your income being greater than your expenses. If it’s not, then you’ll most likely need to continue accumulating more money in retirement savings accounts and in guaranteed income sources.

Whatever you decide to do, the essential part here is to be able to estimate what your retirement income will be for the next step.

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Whatever you decide to do, the essential part here is to be able to estimate what your retirement income will be for the next step.

4. Consider Your Debt and Assets

One more thing: as you’re calculating your retirement income and expenses, don’t forget about any outstanding debt you may have, including your mortgage, vehicles, or credit cards. In a perfect world, it’s best to enter retirement with no debt—except maybe a mortgage—but that may not be possible. At the same time, take into account the assets you have, such as your house and cars, and budget accordingly for them. 

When you can retire all depends on your expenses and income. For some, that’s right now and for others it’s not yet. But the sooner you identify your retirement age, the better off you may be. If you want additional help determining your retirement age, a financial professional can be a good resource for you and can recommend strategies to ensure you get there.

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