By | June 24, 2016

Being ready to retire doesn’t just happen; it takes action.  So, how do you know when to retire?  Are you ready now?  Do you know when you will be?  The sooner you start planning and taking those actions the sooner you can start living your retirement dream.  What actions are you currently engaged in?  Are you saving extra for retirement?  Does your employer offer a pension or 401K for you, and if so, are you matching the contribution to maximize the growth?

Most of us are not going to win the lottery and be able to fund our retirement that way.  Some of us will be lucky enough to have an inheritance from a family member to help kick start our retirement nest egg.  But what about the rest of us?  Where will our retirement funds come from?

Here’s a very simplified initial checklist for you.  Let’s check in here and see how you’re doing.How do you know when to retire?

  • Meet with financial adviser
  • Make a comprehensive action plan
  • Begin to work toward your goals
  • Retire

While that seems like a simplified model, it is really that simple.  While simple, you must do your due diligence and be serious about your future.  The ability to retire is not a “given” for everyone.  Your chances are much better, however, with proper planning and preparation.

As you formulate your goals and develop your own action plan, you need to evaluate where you are in terms of at raw dollars and cents.  In so doing, you may realize a shortfall between where you are and where you want to be.  We’ll talk later in this article about some options to give you hope if this is the case; so don’t be discouraged.

7 Key Retirement Figures to Gather

So, to answer the question – “How do you know when to retire?” – meet with your financial adviser.  Before you meet with your financial adviser, however, it would be helpful if you could pull together some figures to help him or her work through the viability of your retirement position.  I’ll call these the “Top Eight Retirement Figures” you’ll want to gather to help you prepare.

    1. YOUR CURRENT BUDGET. What does your current budget look like?  Do you need to make any adjustments to it in terms of what is “actual” versus “intended”?  Your financial adviser will want to take a look at how you are currently living.  For purposes of this exercise, they will likely assume you want to maintain your current lifestyle when you retire.
      Most people dream of living the “good life” when they retire, but let’s focus on at least living the “same” life.  The rest of this article will use this current budget as a starting point, so that’s why it’s important to make sure your current budget is reflective of your current lifestyle, or at least one you can live with long term in retirement.  Do note, however, that depending on when you first began saving for retirement you may need to adjust your budget downward or find additional income to supplement your retirement funds.
    2. NUMBER OF YEARS TO RETIREMENT? This could be a big number or small number depending on your age.  These days, many people “ease” into retirement, and perhaps shorten their work week, or take more vacations.  Perhaps your employer surprises you with an early retirement package.
      The actual “when” can often change, but for purposes of this exercise, make an educated guess and pick the date you’d “like” to retire.  Again, your financial adviser will use all of these factors to help you determine the best case scenario for your “when.”  So, be prepared to adjust this date, as necessary.
    3. ANTICIPATED EXPENSES. Using today’s dollars, how much will you need to live on every year (refer back to #1-your budget).  Don’t scrimp here, it’s better to over-estimate then underestimate.
    4. RETIREMENT INCOME SOURCES. Social Security is probably one source you are counting on.  The Social Security Administration provides you with an estimate of what your benefits will be; so visit their website or speak with someone who can help you make this determination.Sources of Retirement Income
      Then, take a look at your assets.  What are your other retirement income sources?  Hopefully you will have some other funds to draw on to supplement Social Security.  This could include rental income, pension, annuity distributions, etc.  Do not account for dividends or capital gains in this figure (we’ll look at those a little later).
    5. STOCKS & BONDS (YOUR INVESTMENT PORTFOLIO). It is VERY likely you will discover a shortfall between #3 (how much you need) and #4 (how much you have to count on coming in).   If this is indeed the case, you will need to tap into your portfolio, or other sources of income.
      This is an important figure for your retirement picture, and you’ll want to have an idea of how big it needs to be to sustain the withdrawal each month.  How much will be needed so that you can live comfortably in retirement?
      Let’s start by asking, “What is your portfolio worth now?” Hopefully it includes some combination of stocks, bonds, mutual funds, IRAs, retirement accounts, cash, CDs, etc.  Don’t include real estate or other non-liquid assets just yet (unless you plan to sell them for cash before retirement).
    6. RATE OF SAVINGS. What is the amount you are saving each year?  Refer to #1, your budget.  Hopefully you have a line item for savings!  Is this a true picture of what you are actually saving?  Many times “life happens” and the first thing to go is our savings line item.  Be diligent to keep savings funneling into your portfolio or other asset pools.
    7. ANNUAL RETURN. The annual return from your investments is another piece of your retirement financial picture.  I’m not a mathematician, and this is probably not a number you can calculate.  So gather the all the figures above, take them to your financial adviser, and ask him or her to estimate this one for you.
      This is where the rubber meets the road so to speak, and it is really a good indicator of whether you are on track to retire as planned.  You are hoping for a figure between 3-4% per year after inflation, but that depends upon your risk tolerance and mix of investments.  Unfortunately, we don’t come equipped with a crystal ball; however, for this exercise, you might want to use 3% annual inflation.  Talk all these things over with your financial adviser, and he or she should be able to estimate not only your annual return, but also how much you can safely withdraw each year during retirement.

So what does all of this mean?  It’s important to get all of your ducks in a row, and by providing your financial adviser with a complete picture, referring to items #1-#8 above, he/she can help you determine whether you are on course, behind, or ahead of schedule, as well as when you can retire at what standard of living.

Consider Retiring AbroadPuerto Vallarta

If you find that after gathering this data your retirement goal date is blown out of the water – have no fear.  There are options to help you get back on track or to redirect your course.  For instance, my spouse and I found ourselves wanting to retire sooner rather than later so that we could enjoy each other while we were still “young.”  We have found that our retirement dollars go a lot farther when retiring abroad.  The cost of living in countries outside of the United States has been attractive to us, and we will be retiring sooner because of our choice to retire abroad.  For more information, see Finding the Best Place to Retire Abroad.

Develop an Additional Income Stream

If staying closer to home and family is what you dream of, yet you haven’t the necessary funds available to afford to retire, maybe you should consider an additional income stream to help supplement your retirement or your savings.  My personal favorite is learning How to Make Money Online.

Retirement: When?  Where?  What to do?

All of these figures #1-#7 play together to help you see your financial picture through the retirement lens.  Being diligent in your retirement financial planning while still young is ideal, but many of us find ourselves in situations that have gotten us off course.  There are many facets to being ready to retire, and having a secure financial footing is probably the best place to start.

How do you know when to retire?  To begin, you gather the financial information above and get some help deciphering what it means.  So how about you?  Are you ready to retire, or do you know when you will be?  Are you ready to put some action steps in place to move toward you retirement dream?

If you need to redirect your course, or find other income streams, there are options available for you.  Once you are secure financially, using these figures to determine when the best time is for you to retire, then you can begin to think through “where” to retire and “what” to do during retirement.

Please feel free to share your comments, insights, and questions below.



  1. Najee Pearson

    Awesome article! This article is great for anyone looking for more information about retirement. Even though I’m no where near the retirement age I still learned a lot about the retirement process and what things I need to have in order before doing so. I liked the part where you included making money online in your retirement plan. In my opinion, when people retire that’s the best opportunity for them to turn towards the web and look to making money online. Not that they necessarily need it, but a passive income stream never hurt anyone.

    1. David Hagstrom

      I’m glad you found the article helpful and informative.

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