Many of us put in years of careful planning, expecting to retire by a certain age, and we look forward to that date with the assumption that everything will go as planned. However, it’s important to take the time to reassess any retirement plan once in a while, to be sure that you’ll really be able to retire at the expected time. Since retiring before you’re really ready can wreak havoc on your finances, keep these questions in mind as retirement approaches.
Are you counting on Social Security? Many workers consider age 62, the earliest age at which they can file for Social Security benefits, to be the magic number signaling the start of retirement. In fact, about half of all workers file for Social Security at age 62*. Unfortunately, this is often a mistake, because waiting just a few more years until age 66 will result in a larger monthly check. Since you’re locked into your monthly benefit once you retire, carefully evaluate whether you wouldn’t rather work four more years and receive the larger check. If you still want to retire at age 62, you should definitely have some other form of retirement income.
Have you considered medical costs? Most people envision their retirement while wearing rose-colored glasses. Remember that good health is never a guarantee, and be sure to plan for the possibility of needing long-term nursing care at some point. Your retirement plan should include careful consideration of these expenses, just in case.
What type of debt and financial obligations do you carry? When you think about your living expenses, don’t forget to include any debt you may carry. Also, you may have obligations beyond a mortgage or credit card payments; what about college tuition for your children or helping your aging parents? Each situation is unique, so make sure to be honest with yourself about how much savings you will really need to retire comfortably and meet other financial goals.
Are you betting on market growth? Be careful not to count on the interest income you might receive during a period of rapid economic growth. Instead, make sure you’d be comfortable with a much more modest rate of return, because market conditions can be unpredictable. In fact, it is often a good idea to shift assets into more conservative investments as retirement approaches. It may be best to wait and retire when the amount of income you would receive from more conservative investments feels adequate to cover your lifestyle.
*SmartMoney.com, March 2, 2012