Working Americans can find it difficult to determine when to retire. There are several financial red flags signaling that resigning from work may not be the best option.
Here are some signs that you may not be financially ready to retire:
- A heavy burden of debt.
- No retirement plan.
- Without taking health expenditure into account.
- Rely on social security.
- No plan to pay off a mortgage.
- No clear investment picture.
- They support children.
- Without considering additional costs.
According to a 2019 survey by the Associated Press-NORC Center for Public Affairs Research, one in four Americans who have retired did not feel well financially prepared to retire from work. Here’s how to fix these financial problems and set a retirement schedule that you can logistically manage.
1. A heavy burden of debt
If you are in high debt compared to your income, consider paying off any outstanding amounts before moving on to the next phase. For example, let’s say your monthly income is currently $ 5,000 and you are paying $ 1,000 each month for a credit card balance. When you get rid of credit card debt, you don’t need that additional $ 1,000 payment every month of retirement. This will free up your retirement income for other activities. Without having to worry, “your retirement savings will last longer,” said Lisa Bamburg, owner of Insurance Advantage & LMA Financial Services in Jacksonville, Arkansas.
2. No retirement plan
If you don’t know how much you will need to make a living in retirement, it is difficult to estimate how much nest egg you will need. When thinking about your retirement lifestyle, “create a monthly budget,” says Bamburg. “If you’re retired to travel or spend more time with grandchildren, you need to have an idea of how much that adds to your monthly expenses.” Once you have a monthly budget, you can compare it to your investments and savings to determine if you have enough time to retire.
3. No consideration of health expenditure
If you plan to retire before age 65 and then qualify for Medicare, you will need a separate plan to cover your healthcare costs in the meantime. “Health insurance is incredibly expensive,” said Logan Allec, auditor and owner of the personal finance blog Money Done Right. “Depending on your circumstances, health insurance can cost more than $ 1,000 a month.”
Retiring at the age of 65 or older can pose a number of health challenges. Medicare doesn’t cover all medical expenses, so you should include health care costs in your retirement budget. The retirement healthcare cost list may include premiums, co-payments for doctor visits, home care, dental and eyesight care, and other expenses not covered by your insurance.
4. Rely on social security
You can create a My Social Security account and get an estimate of the social security benefits you can expect when you retire. The benefits are based on your work experience and your income. The benefits may not support the lifestyle you planned for retirement. “What happens if social security benefits are cut?” Bamburg says. “Your retirement plan must be more than social security.”
5. No plan to pay off a mortgage
If you still have a mortgage on your home, check how many years of payments you have left on the loan. “A recurring payment mortgage that you face every month is likely to be your biggest and most consistent expense,” says Allec. “Until you have a plan for handling your biggest retirement expenses, it is not time to retire.” You can choose to use some savings to pay off the home loan. You could also sell the house and downsize it when you retire.
6. No clear investment picture
If you have a number of investment vehicles, e.g. For example, a 401 (k) plan through work, an individual retirement account, stocks, bonds, or real estate, you need to understand how these fit together to generate income for your retirement years. “Collecting retirement savings is not a plan,” said Jeannette Bajalia, founder and president of Woman’s Worth in Jacksonville, Florida. “It’s just a set of financial products that you happen to own, and that doesn’t guarantee you retirement success.” Sit down with a financial advisor to review your investments and come up with a plan to help you fund your retirement years.
7. You support children
If you still have kids at home or in college, you may be spending money every month to cover their living expenses. Retiring and moving to a steady income can put a strain on your overall budget. “Retirement should be about you and you have to feel comfortable enough not to have to worry about your children,” says Bamburg. You can wait a few years for your children to live alone to retire. You can also choose to take a retirement job to increase your income.
8. At no additional cost
Even with a devised retirement plan, the unexpected can crop up in retirement. Inflation could be higher than predicted, healthcare costs could rise more than expected, or an unforeseen home repair could occur. “Make sure you take the unknowns into account,” says Bajalia. You may have an emergency fund that can be accessed for the next several years. You can also set up a retirement savings account that can be easily accessed in the event of unexpected costs.