Are you on retirement’s doorstep but not quite sure you should do it?
Here are three questions to ask yourself, the answers to which might give some degree of comfort or, if they don’t, send you back to the drawing board.
Do you have enough to retire?
If you haven’t examined whether you’ll have enough money to support your desired standard of living in retirement for as long as you and surviving spouse live, now would be a good time to do so.
What’s the best way? The quickest and perhaps least painful is to review how much have saved for retirement as a multiple of your salary. According to T. Rowe Price, at age 60, you should have six to 11 times your salary in your nest egg. At age 65, you should have 7.5 to 14 times your salary saved. Fidelity Investments has a similar rule of thumb: Aim to have 10 times your salary earmarked for retirement by age 67.
If by chance, you don’t have at least 7.5 times your salary saved by age 65, you should consider working longer, saving more, and reining in your desired standard of living.
What’s your plan to manage the risks you’ll face?
Like it or not, you’re going to face plenty of risks in retirement, some of which, many of which, all of which could ruin your best-laid plans. Unless, of course, you have a plan to manage those risks.
What’s the easiest way to do that? The Society of Actuaries this year published a report that details 13 risks you could face in retirement, the predictability of those risks occurring and the ways to manage those risks. A good task: Review all the risks that are detailed in “Managing Post-Retirement Risks: Strategies for a Secure Retirement” and determine if you have a plan in place to manage those risks.
If not, now would be a good time to address those risks, especially inflation, market volatility, longevity, health care costs, divorce and death of a spouse.
Lee Edgcomb, a retirement management adviser with Edgcomb Financial Advisors, says creating your own “paycheck” through a 30-year retirement is a real challenge seeing as the future is unknowable. It’s best, he says, to address the risks and create high levels of confidence versus “winging it” and creating high levels of uncertainty.
Edgcomb also says the greatest risk to retirement plans are extraneous costs from children and grandchildren. “They are usually big tickets and non-negotiable,” he says.
What will you do in retirement?
Many people retire “from” something but not “to” something. And then what happens is they go back to work or find themselves unhappy, or even worse depressed, in retirement.
The better thing to do? Evaluate, long before you retire, what it is you will do in retirement? What will give you a sense of purpose? For some, it may mean spending time in the garden or with grandchildren. For others, it might mean volunteering. And for others, it might mean pursuing the thing they’ve always wanted to do: starting a company or sailing around the world.
What’s the rush? “The main answer is that it wouldn’t matter except for time,” says Larry Jacobson, the founder of Buoy Coaching, a retirement lifestyle planning firm. “If one has all the time in the world, then they can use the beginning of retirement to figure out the rest of their life. But as time presses on, without a plan, one will start their retirement with the search mode of their transition, rather than jumping right into what they think they want to do.”
Jacobson asks: Why waste precious retirement years on the discovery process when one could have been planning a few years before retirement? He also notes that depression is a big risk, with a 40% higher probability of falling into clinical depression within the first year of retirement.
“Having a plan is the remedy,” he says.
What’s more, Jacobson says your plan does not have to be set in stone forever and can change. “And with a plan, at least there’s something to change,” he says.
