It’s one of the most important financial events of our lives. After decades of hard work and wisely saving, we finally get to the point in our lives when we’re ready to retire. But even though you may be approaching retirement age, how do you know you’re ready to retire?
Here are four things to do to make sure you’ve got a good retirement plan in place:
1. Review accounts, goals and investments
Are your accounts all over the place? Maybe you have multiple accounts at multiple institutions, and you have to spend your time remembering where they are, what the username and password is, etc.
Make it easy for yourself and your spouse and consolidate them. There isn’t much to be gained by having 4 different IRA accounts at 4 different institutions. But there’s a lot of peace of mind by only having to look to one place to see your investments. And again, this simplicity isn’t just for you, but also for your spouse and beneficiaries.
Next, review the goals that you and your family have for the rest of your lives. Do your investments match what is needed to achieve those goals? Are your goals specific and measurable, so that you know exactly what you are aiming for?
If you aren’t sure about the answer to those questions, that’s okay. But I would highly recommend that you seek out a Financial Advisor who can help you answer them. This is too important of a time in your life to leave it to chance or guesswork.
Finally, review your investments to make sure they still make sense to your situation. You don’t want to have your investments overly aggressive or overly conservative when that doesn’t fit your situation. Think of it this way: Why would you drive 85 MPH to get to your destination when you only need to drive 65 MPH to get there on time?
2. Plan for income
What’s your gameplan for generating the income that you need to replace your work income? You can’t jump into retirement without a plan that you understand and agree with.
There’s a lot of different ways to skin a cat, so I’m not going to get into the nuances of what I prefer and why (I’ll save that for a separate blog post). The key is to find and understand a strategy that you agree with and then implement that plan.
If you don’t know how to do this or don’t want to figure it out yourself, find a good, honest and competent Financial Advisor who can help you develop one. You can pay them a one time fee for the plan, and then either implement the plan yourself or hire them on an ongoing basis to implement the plan.
3. Plan for filling up 9-5
What are you going to do on that first Monday morning in retirement when the alarm clock goes off at 6AM and you realize there’s nowhere you need to go? I know that that sounds like a good problem to have. And it is.
But after a couple months of not having anything to do, you’re going to get restless and need something to fill your time. Maybe it’ll be volunteering at a local charity or tutoring kids in an afterschool program. Or starting a blog to showcase the reviews you’ve written for your lengthy book list.
Spend some time and contemplate what you want out of the rest of your life. One way to get your mind focused on that is to ask yourself a somewhat morbid, but very revealing question: What would you regret not having done in your life if you were to die tomorrow?
4. Beef up your emergency fund
When you’re working, it’s usually appropriate to aim for 3-6 months of emergency funds. But when you’re retired, I suggest you beef up your emergency fund to 2 years.
The reason for that is we want to be prepared in case of a long and substantial market decline. In other words, for something like the Great Recession in 2008-2010. In those times, you will want to have a cash cushion that you can use to cover your expenses so that you don’t have to draw down too much from your investment accounts.
I know it might seem like a lot of money to have not making much interest for you. But when you’re using your investments as the main source of income, it will provide tremendous comfort when (not if) the next market downturn comes.
If you’re able to address these four issues, you’re on great track to confidently retire. However, there are a few more issues to cover. So make sure you come back to the blog as next time I’ll tackle part 2 in answering the question: How do you know you’re ready to retire?