Retirement, unfortunately, does not always coincide with the time we’re tired of our jobs, ready to start sleeping in, and looking forward to more time for hobbies. Choosing the right time to retire is largely dependent on our financial situation, and that doesn’t always match up with our mental readiness.

Retiring too early or without a sound financial plan could tarnish your golden years. Here are four factors to consider as you plan your retirement date.

 

  1. Your debt level

Managing a lot of debt payments on a fixed retirement income can be difficult, especially if your budget is tight. Unexpected expenses will leave you with little wiggle room and could lead to difficult circumstances such as losing your house.

If you are in this situation, a better choice is to work for a few more years and focus your income on paying down debt, especially high-interest loans or credit. This may mean cutting back on extra expenses to pay more toward high-interest debt such as credit card balances. You may also want to downsize or pay off your mortgage altogether, reducing the monthly payments you’ll have to make in retirement.

If you’re not sure whether to dedicate income to your retirement account or debt payments, look at what your retirement portfolio is earning compared to the interest rate you’re paying on your debt. If you’re earning 7 percent in the market and paying a 3.5 percent interest rate on your mortgage, a better choice is to invest your money. If the situation is flipped, paying down your debt would be the wiser choice.

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  1. Whether you can pay your monthly bills

It’s generally accepted that you’ll need about 80 percent of your pre-retirement annual income for a financially stable retirement. If you’re already struggling to pay bills while you’re working, retiring with a lower monthly income will only make your situation worse.

Your monthly budget will change in retirement. You’ll receive income from your retirement savings, pensions, and Social Security, and your budget lines for work-related expenses such as community and lunches out will likely drop. However, these changes may not be enough to cover your budget comfortably if you were already living month-to-month. Before you stop working, think through your retirement budget and whether a few more years on the job and decreasing your expenses would put you in a better position to retire.

 

  1. Your retirement plan

Estimating your financial needs in retirement can be a moving target, as you don’t know how long you will live and what your expenses will be as the years go on. Today, Americans are living longer—if you are nearing retirement age and are in good health, it’s likely you could live to 90. In that case, you’d need to plan for savings that would last as long as 25 years.

If you’ve thought about what retirement will be like but now how exactly you’ll fund it, you’re probably not ready to retire yet. After defining your retirement goals and lifestyle, you’ll need to estimate your retirement living expenses, plus annual inflation. Retirement budgeting can get complicated, as you’ll need to figure out how much Social Security you’ll receive depending on what age you’ll retire and factor in new expenses such as healthcare costs and travel plans.

Retirement also can bring large, unexpected expenses, such as pricey home repairs and vehicle replacements. If you’re not sure whether your retirement income would cover these costs, it may be best to take care of them now instead of factoring them into your retirement budget.

When you have a plan in place, whether you draw it up yourself or work with a financial adviser, you’ll have a better idea of how many years you’ll need to work to have the retirement you want.

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  1. Your anxiety level about quitting your job

It can be hard to stop working, even if you’re financially prepared. Plus, you may love your job and not really want to leave it. Work gives our days structure and purpose, and the thought of days on end with no concrete plans may be stressful. This can lead to spending over your retirement budget as you try to fill the time.

If you’re in this situation, you have several options for managing retirement. You can keep working and saving, which will be financially beneficial when you retire. You also can take a part-time job or a regular volunteer shift with a local organization as you ease into retirement. If you’re worried about your retirement budget, you can try living on your retirement income and see if it’s enough for you to manage comfortably.

If you find that you’re not ready to retire, you’ll reap the many benefits of extra years of work. Along with increased savings and more time to pay off debts, you can stay on your work’s healthcare plan and spend a few years preparing for living on a retirement budget.