The 3 Most Important Factors in Deciding When to Retire

Matthew Gray |

Retirement can be scary. 

While we typically picture an Adirondack chair on the beach, volunteering for local causes, or simply not having to work a 9-5pm job, planning for our own retirement can feel overwhelming. 

How do you know when you will be ready financially? How can you know if you may run out of money or have to go back to work if the economy turns south?

Since there can be a deluge of decisions to think through, it can be helpful to distill the retirement decision down to the three most important first steps.

  1. How and when to take Social Security

Social Security, for those who qualify, is one of your largest retirement assets. 

While there are unknowns as to how the program may change in the future, it is sure to be a pivotal piece of your retirement picture.

In the current system, you have a great deal of control in how you take your benefits and what you will receive. You can take it as early as age 62 but can significantly increase your benefits by waiting all the way up until age 70.

There are even more choices if you are married or divorced. Many people aren’t aware they and their spouse (or former partner) do not have to start their benefits at the same time. 

You even have the choice of drawing half of your spouse’s benefits in some cases, which can be especially beneficial if one partner had significantly higher earnings. 

Determining how and when you (and your spouse) will turn on these benefits could make or break your retirement.  

2. Determine how much you can draw each year from investments

You have spent most of your life saving and investing for retirement. Is it enough?

While there is no crystal ball to know for sure, there are principles which can be applied to your specific circumstances to see how much you can safely afford to withdraw each year while minimizing the risk of running out of money. 

Principles like the 4% rule or tools like a Monte Carlo retirement simulator can be great ways to help visualize the possibilities. 

However, all rules of thumb and calculators need to be adapted to your unique situation to ensure you are making wise plans. 

3. Identify your expenses

This is likely the most important of the three. 

While no one spends the exact same amount of money each year, routine expenses can be quite predictable. 

What is also predictable is how much we all underestimate our spending. 

The key to a successful retirement is being able to create a clear picture of both your necessary and desired spending.

There are ways to do this which are much less labor intensive than tracking receipts or poring over every transaction on your bank statements. 

For some quick tips on this, check out our retirement guide pages 18 - 23. LWM - How to Retire.pdf - Google Drive

While it may not be your favorite activity, you will find it invaluable to go through some simple exercises to understand your spending. 

If you would like help with any of these three areas, you can schedule a time to talk with me by clicking here.