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Three Questions to Answer Before You Retire

If you’re approaching the day when you plan to entire retirement, congratulations! You have likely spent decades working hard, saving money and preparing for this new season of your life.

As you get closer to your planned retirement date, your excitement might be mixed with a twinge of uncertainty and maybe even a little concern. What if you haven’t saved enough money to live the retirement lifestyle you’ve dreamt of? How will you handle the adjustment from full-time work to full-time retirement? And what will you do with all the free time you’ll have after you retire?

Here are three questions you and your spouse should discuss before you retire that can help ease some of this uncertainty and worry.

1 How Much Money is Enough to Retire On?

This is the main question that many people have during the years or months leading up to their planned retirement date — and rightly so. If you haven’t saved up enough money to meet your anticipated living expenses after you retire, then the other questions become moot.

There are lots of different so-called “benchmarks” out there that will supposedly tell you how much money you should have saved before you retire. A common benchmark is $1 million, and one popular financial columnist has suggested $5 million. But everyone’s situation is different so there isn’t any one number that’s right for everybody.

For example, a couple living in a high-cost city who plans to travel extensively and indulge in expensive hobbies is going to need a much bigger retirement nest egg than one living is a low-cost rural area with plans for a modest lifestyle. So don’t get discouraged if you haven’t saved as much as some supposed expert says you should have for retirement. 

Instead, create a retirement budget based on your anticipated expenses after you retire and then do some number crunching to see if you’ve saved enough money yet (more details below). You could even do a test run by seeing if you can comfortably live off of your budget for a few months before officially making the jump.

2. How Will I Know It’s Really Time to Retire?

This is a two-part question. The first part: Do you have enough money saved to retire comfortably? The second part: Are you emotionally prepared for retirement?

One way to figure out if your retirement nest egg is big enough is to apply the 4% rule to your number crunching. According to this rule, you should be able to withdraw up to 4% of your retirement account principal each year and not worry about running out of money before you die. In more than 70% of the time periods tested, following this rule would result in a retirement portfolio lasting longer than 50 years (assuming between 50% and 75% of the assets are invested in stocks).

Also, don’t forget to factor income from Social Security into your calculations. The average Social Security payment today is about $1,400 per person, or $2,800 per couple. Remember that the longer you wait to start claiming Social Security, the higher your monthly benefit will be.

As for the second part of the question, give some serious thought to whether you’re emotionally prepared to transition from full-time work to full-time retirement. Some people are so self-identified with their jobs that when they’re no longer working, they literally don’t know who they are anymore. Start cultivating friendships and relationships outside of work if you don’t have many now to help make the emotional transition easier.

3. What Hobbies and Interests Will I Pursue in Retirement?

This is a continuation of the previous question. The most satisfied retirees tend to have a range of core interests and pursuits to keep them busy during retirement. These may include hobbies, sports (like golf or tennis), travel, exercise or volunteering.

For example, there might be certain activities or pursuits you’ve always wanted to try but never had time for while working — if so, make a list of them before you retire. Many retirees get a tremendous amount of satisfaction out of volunteering and helping make a difference in causes they’re passionate about. Volunteer work could give you a restored sense of purpose while also positively impacting your community.

You might even decide to work part-time after you retire. Not only will this provide additional income to supplement your retirement savings, but it will also allow daily social interaction and help keep your mind and skills sharp.

Go in With Eyes Wide Open

Retirement represents a major lifestyle shift, so it’s smart to go into it with your eyes wide open and be realistic about what to expect. Answering these three questions can help you be better prepared to take this big step.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.