The Decision to Retire Takes Research, Planning
The recent return of volatility to the investment markets, combined with a healthy sense of uncertainty about the global economy, has left almost everyone feeling a bit anxious, but none more anxious than those contemplating retirement. The question that currently abounds, for the young and old, is – can I retire?
I Can Retire?
Unfortunately, there are no easy answers here, and you won’t do well by asking the magic eight-ball. You have to do in-depth retirement planning and run the numbers. A proper retirement analysis is an immense undertaking that requires a notable time commitment, a great deal of research and a surprising amount of introspection. Some of the issues center on the data, such as anticipated expenses, income sources, projected investment returns and inflation rates. However, the initial discussions in the retirement planning process are more blue-sky than simply, “Can I retire?” and involve questions such as ‘What does retirement mean to me?’, ‘How do I envision myself spending my time?’, ‘Where do I want to live?’
When Can I Stop Saving For Retirement & Start Spending?
While this is the crux of the retirement question, it may not be an ‘all or nothing’ proposition. Unlike 20 years ago when most people went to work on a Friday and were officially retired the following Monday, more people are becoming interested in making a transition into retirement. Some of the interest is financially driven and focuses on issues like cash-flow and maintaining an option for lower-cost health insurance; however, much of the benefit comes from a desire to stay connected and engaged or to pass years of experience and knowledge on to the next generation.
The current trend is an ever-increasing interest in slowing down at a younger age with the plan to work on a part-time basis for some years. If you are not financially or psychologically ready for full retirement, a transition allows you to ease into retirement by reducing your professional commitments and stress levels while beginning to increase leisure time in a manner that will have a less financial impact than full retirement.
How Much Can I Spend In Retirement?
Don’t take this calculation lightly; failure to accurately determine a sustainable income level can lead to the most disastrous outcome – running out of money during retirement. Don’t rely on rules of thumb, like a 4 percent withdrawal rate, or the basic financial calculators that are available from hundreds of financial websites.
As you go through the process and the numerous detailed calculations, keep in mind that scores of miscalculations have come from merely underestimating income needs, the impact of taxation, the impact of inflation and your life expectancy. Likewise, other common sources of miscalculations have come from overestimating investment returns, other income sources or anticipated windfalls from events like inheritances or the sale of a business.
It is prudent to build in some cushion to select areas of your analysis, without going overboard. When dealing with an issue like retirement planning, it is better to have a positive surprise than a negative one.
Should I Get A Second Opinion About My Retirement Plans?
Can I retire is a big question, and hiring a professional to provide a second opinion is money well spent. Even if the expert analysis only confirms your original hunch or decision, it is difficult to put a monetary value on the peace of mind that it provides.
If made in error, the decision to retire cannot easily be undone once you have made the transition into retirement. If you determine that you retired prematurely, it can be a tough proposition to re-enter the workforce and even more difficult to return at the same income level that you had been earning just before retirement.
As you take steps to hire an advisor to guide you through the retirement planning process, be sure to vet the advisor thoroughly. Consider their level of expertise, the types of clients that they regularly work with and how they are compensated; generally speaking, the most sophisticated advisors will not sell products but will work on a per-project fee when you engage them.
Can I Retire is an article from The Patriot-News, originally published November 13, 2011.