When Should You Retire?

We all spend a lot of time looking forward to retirement. If it were entirely up to you, you’d probably retire yesterday. As it is, you have to do the proper calculations and figure out when you can actually afford to retire.

Analyze Your Current Cost of Living

The first step to determining the best age to retire is to figure out how much you typically spend in a month now. If you keep a monthly budget, then you’re probably already set on this step. If not, then do a thorough analysis of your credit card bills and bank statements to figure out:

• The average amount you spend in a month
• The most you’ve spent in a month in the last year – and what accounted for the difference
• Which of your expenses in the past year were necessary (e.g. rent, food, health care) and which were optional (e.g. entertainment, shopping, travel)

You have to understand your current baseline before you can predict possible changes to it.

Account for Changes to Your Cost of Living After Retirement

Your monthly budget now doesn’t necessarily equal your retirement monthly budget. Some of the changes to your regular spending will be easy to predict. If you spend money buying coffee on your way to work every day, you can probably subtract that cost from your predicted retirement budget (but then add in a little for the cost of making coffee at home). The amount you spend on gas or public transportation should decrease if you’re cutting a daily commute out of your life.

On the other hand, you should anticipate some increases in spending that are hard to guess at. Aging tends to go hand in hand with increased health issues, so you should expect your health care costs to increase, especially if you need to move into assisted living or a nursing home at some point. If you make the choice to age in place, you’ll need to invest in home modifications.

Looking more on the bright side, if you’ve always dreamed of travel or other potentially expensive hobbies during retirement, then you need to account for that in your budget as well.

Work out the costs you know will increase or decrease and leave yourself some wiggle room for all the expenses you won’t be able to anticipate.

Do the Math

Now that you’ve gotten a handle (at least generally) on what to expect your expenses to be month by month during retirement, you need to do the calculations to figure out how that number relates to your income and savings.

Keep in mind as you do this that you’ll get more from social security if you wait to apply until a few years after you first become eligible. If you can manage to live on your savings and retirement accounts for the first few years of retirement, then you’ll be better off for it.

You can get some help with doing all the calculations by using a retirement calculator on the internet, like this one, but don’t be over reliant on those numbers as a lot of them require guesswork – for example, you can’t know for sure what inflation or your investment return will be.

Consider Talking to a Financial Advisor

This stuff is complicated and if you’re not sure about the math or worried about not making the best decision, there’s no reason not to get some help. Look for a trustworthy financial advisor in your area. It’s their job to specifically consider questions like when to retire, so they can help you work out the details and make sure you’re not forgetting anything important.

Kristen Hicks

Kristen Hicks is an Austin-based copywriter and lifelong student with an ongoing curiousity to learn and explore new things. She turns that interest to researching and exploring subjects helpful to seniors and their families for SeniorAdvisor.com.