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Questions to Answer Before You Retire

Are you dreaming of retiring soon? Do you have a clear picture of what your retirement will look like? Retirement is a major life transition that requires careful planning and preparation. It’s not enough to just save your money and quit your job. You also need to consider how retirement will affect your health, lifestyle, and happiness. In this post, I’m going to share 5 questions you can ask yourself to see if you’re prepared for retirement. By answering these questions honestly, you’ll be able to make a more informed and confident decision about when and how to retire. 

  1. Do You Have Enough Money? 

This is the biggest question for most entering retirement, and probably the most complex. One of my main roles is to help clients create a solid financial plan to support their retirement goals. There are several factors to consider when determining if you can afford to retire:

  • Withdrawal Rate: How much can you sustainably withdraw from your retirement savings? A popular withdrawal strategy is to take 4% of your portfolio in the first year of retirement and adjust it for inflation in subsequent years. This strategy has been shown to work in most historical scenarios, but it’s not foolproof. It also depends on having a reasonable investment plan and avoiding costly mistakes. 
  • Spending Needs: How much do you need to spend each year to maintain your desired lifestyle in retirement? A common rule of thumb is to expect to spend 80% of your current income in retirement. That’s a very rough starting point and your actual figure will vary widely depending on your unique circumstances and preferences. I find that many people often underestimate their actual spending when they plan for retirement. I prefer to look at your net income over the past couple of years and compare it with what you saved for retirement and other goals. This gives me a more realistic idea of your true spending. You should also think about how your spending will change in retirement. Do you think it will increase or decrease? I expect my spending to increase in retirement because I envision myself traveling more and doing more activities that cost money during my free time.
  • Investment Plan: Do you have a reasonable portfolio allocation that matches your goals and needs? Is it resilient enough to withstand a market downturn like the Great Recession? Will it allow you to keep up with inflation if it remains high in the future? 
  • Income Sources: Have you figured out the most tax-efficient way to fund your retirement? When is the best time to claim social security benefits? How should you balance the income you take from tax-deferred accounts vs other sources? 
  1. Do You Have a Plan for Your Health? 

Medical costs in retirement will average $315K for a  married couple age 65 in 2023, according to The Fidelity Retiree Health Care Cost Estimate. That doesn’t even include long-term care costs! Have you factored medical costs into your retirement plan? 

For those 65 and older, the main challenge is navigating Medicare. If you want to retire earlier, expect to pay up for health insurance. Unless you get coverage through a spouse who is still in the workforce, you’ll have to buy private or marketplace insurance, both of which are shockingly expensive.  

There are other health considerations that you should take into account when planning your retirement. What is your family history of longevity? Genetics plays a big role in life expectancy. That’s something you should take into account when planning your social security claiming strategy and determining how much money you need to retire. 

On the other hand, if you have poor health or a family history of disease that could require long-term care, you should factor that into your retirement planning. 

  1. How Will You Spend Your Time? 

Many workers fantasize about free time and relaxation in retirement. At first, many people experience a honeymoon phase, no longer going into their 9-5 job. For some though, this freedom can turn into a curse. Many people derive a lot of meaning and fulfillment from their work and feel lost or bored when they retire. The lost social connections can also result in a feeling of isolation. That’s why it’s important to have hobbies/passions and a strong social network as you enter retirement. 

Some questions to ask yourself are:

  • What are your hobbies and passions? How will you pursue them in retirement?
  • What are your goals and dreams? How will you achieve them in retirement?
  • How will you stay mentally and physically active in retirement?
  • How will you maintain or expand your social network in retirement?
  • How will you contribute or give back to society in retirement?
  1. How Will You Coordinate With Your Spouse or Partner? 

If you have a spouse who is already at home or retired, do they want you home 24/7? Oftentimes your retirement can impact your spouse or partner just as much as it impacts you. Some questions to ask yourself and your spouse or partner are: 

  • How will you share household responsibilities in retirement?
  • How will you balance your individual and shared interests in retirement?
  • How will you communicate your expectations and needs in retirement?
  • How will you support each other’s goals and dreams in retirement?
  1. Do You Have a Plan for Your Legacy?

Retirement is not only a time to enjoy the fruits of your labor, but also a time to think about the legacy you want to leave behind. Whether it’s your family, your community, or the world, you have the opportunity to make a positive impact and leave a lasting mark. This is a great time to ensure you’ve set up an estate plan and thought about the best way to take care of loved ones and other causes that are important to you. 

Are You Ready to Retire? Retirement is a big decision that involves more than just money. It’s also about your health, your lifestyle, your relationships, and your legacy. By asking yourself these 5 questions, you can get a clearer picture of whether you’re ready to retire. If you need help with answering these questions or creating a retirement plan that suits your needs and goals, feel free to contact me for a free consultation.

Scott Caufield, CFA, CPA