How To Know You’re Ready for Retirement

Retirement is a  time of life when one chooses to permanently leave the workforce behind. It also  means to “withdraw from one’s position or occupation or from active working life.”

You can achieve retirement when you have sources of income that do not have to be earned by working.

The traditional retirement age in Nigeria is 65 years or 35 years of service and most other developed countries, many of which have some kind of national pension or benefits system in place to supplement retirees’ incomes.

Retirement and the term “financial independence” are often used interchangeably. Both are achieved when you have enough combined savings, investment income, and/or pension income to cover your living expenses.

What Is Retirement Planning?

Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.

Future cash flows are estimated to determine if the retirement income goal will be achieved. Some retirement plans change depending on whether you’re in Nigeria or other climes.

Retirement planning is ideally a life-long process. You can start at any time, but it works best if you factor it into your financial planning from the beginning. That’s the best way to ensure a safe, secure—and fun—retirement. The fun part is why it makes sense to pay attention to the serious and perhaps boring part: planning how you’ll get there.

Are you on retirement’s doorstep but not quite sure you should do it??

Here are three questions to ask yourself, the answers to which might give some degree of comfort or, if they don’t, send you back to the drawing board.

Do you have enough to retire?

If you haven’t examined whether you’ll have enough money to support your desired standard of living in retirement for as long as you and surviving spouse live, now would be a good time to do so.

What’s the best way? The quickest and perhaps least painful is to review how much you have saved for retirement as a multiple of your salary. According to T. Rowe Price, at age 60, you should have six to 11 times your salary in your nest egg. At age 65, you should have 7.5 to 14 times your salary saved. Aims to have 10 times your salary earmarked for retirement by age 67.

If by chance, you don’t have at least 7.5 times your salary saved by age 65, you should consider working longer, saving more, and reining in your desired standard of living.

What’s your plan to manage the risks you’ll face?

Like it or not, you’re going to face plenty of risks in retirement, some of which, many of which, all of which could ruin your best-laid plans. Unless, of course, you have a plan to manage those risks.

What’s the easiest way to do that? The Society of Actuaries this year published a report that details 13 risks you could face in retirement, the predictability of those risks occurring, and the ways to manage those risks. A good task: Review all the risks that are detailed in “Managing Post-Retirement Risks: Strategies for a Secure Retirement” and determine if you have a plan in place to manage those risks.

If not, now would be a good time to address those risks, especially inflation, market volatility, longevity, health care costs, divorce, and the death of a spouse.

Lee Edgcomb, a retirement management adviser with Edgcomb Financial Advisors, says creating your own “paycheck” through a 30-year retirement is a real challenge seeing as the future is unknowable. It’s best, he says, to address the risks and create high levels of confidence versus “winging it” and creating high levels of uncertainty.

Edgcomb also says the greatest risk to retirement plans is extraneous costs from children and grandchildren. “They are usually big tickets and non-negotiable,” he says.

What will you do in retirement?

Many people retire “from” something but not “to” something. And then what happens is they go back to work or find themselves unhappy, or even worse depressed, in retirement.

The better thing to do? Evaluate, long before you retire, what it is you will do in retirement? What will give you a sense of purpose? For some, it may mean spending time in the garden or with grandchildren. For others, it might mean volunteering. And for others, it might mean pursuing the thing they’ve always wanted to do: starting a company or sailing around the world.

What’s the rush? “The main answer is that it wouldn’t matter except for time,” according to  Larry Jacobson, the founder of Buoy Coaching, a retirement lifestyle planning firm. He explained: “If one has all the time in the world, then they can use the beginning of retirement to figure out the rest of their life. But as time presses on, without a plan, one will start their retirement with the search mode of their transition, rather than jumping right into what they think they want to do.”

Jacobson asks: Why waste precious retirement years on the discovery process when one could have been planning a few years before retirement? He also notes that depression is a big risk, with a 40% higher probability of falling into clinical depression within the first year of retirement.

“Having a plan is the remedy,” he says.

What’s more,  your plan does not have to be set in stone forever and can change. “And with a plan, at least there’s something to change,” he says


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3 comment

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