One of the biggest concerns affecting workers today is retirement. Study after study shows that a large number of employees fear there won’t be enough money set aside in Social Security and their personal savings to pay for financial obligations after they’ve stopped working. As a result, many have simply opted to stay at their jobs longer than they ever thought they would.
This poses a question that everyone will face in their professional lives: When will I be ready to retire?
How do you gauge when the time is right? Does it depend on the amount you’ve saved, the nation’s cost of living, politics or all of the above?
There’s no doubt it’s a tough question to answer, so to continue our “Are You Ready” series, let’s look at how you can tell when you’re ready to leave your job for good.
Retirement Is America’s Biggest Concern
A recent study conducted by Americans for Secure Retirement (ASR) revealed 88 percent of the individuals polled were actually afraid of retirement and whether they’d be ready for it financially. Unbelievably, the number of concerned Americans had jumped 15 percent from the year prior, proving that more workers than ever are worried about how they will make ends meet after retirement.
Experts say that on average, a retiree should save 25 times their annual expenses. So if you spend $30,000 each year on your financial obligations, vacations, etc., you should have $750,000 set aside for retirement. Some say the cost of living increases and other unplanned expenses could easily boost the amount needed for retirement into the millions.
This high number makes it even more difficult to save for the future. A 2010 study conducted by Wells Fargo & Co. found middle-class Americans hadn’t even saved 7 percent of their desired retirement nest egg.
And while Social Security used to play a large role in providing income for retirees, government officials predict the Social Security trust fund will run out in 2017.
So how do you now when the time is right for you to take the big step?
Are You Financially Ready to Retire?
With all of concerns retirees are facing, some are opting to stick with their employers for a few more years. In fact, a study conducted by the Employee Benefit Research Institute (EBRI) revealed in June that many employees will need to work into their 70s or 80s to have enough for retirement.
If retiring has been on your mind, you, too, may be wondering when the time will be right for you to walk away from the workforce forever. Here are some tips to consider as you make this tough decision:
1. Your 401(k) Is on Track
If you contribute to a 401(k), IRA, are growing funds in CD or utilizing other retirement savings tools, it’s important to sit down and look at how much you have saved so far, and how much you’re contributing every year to determine how many years from now you’ll reach your projected savings goal.
2. You’ve Estimated Your Social Security Benefits
It’s unlikely Social Security recipients will receive full benefits in the future, so it’s not best to center your retirement savings around it. You can find out your estimated benefits, however, by using the administration’s online estimator. Keep in mind as you calculate your savings, that the age to earn partial benefits is 62 while full benefits can be earned between ages 66 and 67.
3. Current and Projected Expenses Are Calculated
Your current expenses, including utilities, food and shelter, emergency funds and whatever else it takes to maintain your desired lifestyle should be estimated to help you determine you’ll actually have to save to retire.
Healthcare is a huge expense that could become even bigger as you age. So consider the cost of Medicare, which will become available at age 65, and other out-of-pocket healthcare expenses (deductibles, drugs, gap coverage, etc.) you might need to pay in retirement.
4. Your Retirement Savings Cover Your Expenses…and Then Some
Whether you’re ready to retire today, or twenty years from now, don’t do it if you’re questioning whether you can. Retirement is supposed to be an relaxed time when you enjoy all your years of hard work. Make sure you’re not cutting it too close by saving up the bare minimum.
Of course, deciding exactly when to retire is completely up to you. You may not ever feel completely comfortable choosing a date to walk away from your job, especially when the economy is rocky, but when the time is right, you’ll know. And it will be at that moment that you’ll trust your instinct, take a deep breath and begin planning your cruise.