Can I Retire? How Do I Know?
Can I Retire?
- Accumulation phase, in which is your period of working years (25 – 55 years old, 30 years of working).
- Consumption phase, in which is your period where you will “consume” when you live on (25 – 75 years old).
There is a simple check list to identify if you are ready for your retirement:-
1. Have You Started Saving
Develop this habit of saving as early as possible. The earlier you begin contributing to your retirement fund, the more money you will have when you retire. Read my Financial Test post on the power of compounding.
2. Struggle to Pay Your Medical Fee?
You probably don’t face this problem when you are young. When you are more than 40 years old, you probably incur pricey medical bills.
One should consider signing up a health care insurance as early as possible – Financial Tips for Young Adults. Statistic says a 65 year told couple needs an average of $220,000 to pay for medical expenses during the retirement.
Please also note that that does not cover the bill of nursing home yet.
3. Struggle to Pay Your Credit Card Debt?
Are you still maxing out your credit card because you just don’t have sufficient money?
This is a common problem to all of us now as it is too easy now to own a credit card. Well, this is how the bank is getting richer and richer.
4. Spending Too Much of Your Income?
Rule of thumb: Do not spend more than 20% of your net income on consumer credit payments (Financial Test)
5. Not Sure How Much You Need to Retire?
If you have no idea how much money you will need, probably you are not ready for your retirement yet.
6. Relying On Your Social Security?
I know part of your salary goes to Social Security but this is not what you should count on!!
1. Increase Savings and Reduce Expenses
This is the simplest and the most straight forward strategy. People should start looking at their current financial situation and project the numbers to their retirement age.
Based on your current saving and income, make an in-depth assessment of your cash flow and strategy to make further saving-expenditure adjustment in order to meet your retirement goals.
If you think your current financial condition can’t give your desired retirement life, you should start saving more and cut down your expenses.
At the same time, lower your living standard before your retirement age so that you get used to it before you are disappointed later.
Everyone knows what we are retiring from, but a lot of people do not know what they retiring to.
It is important to plan ahead what you want to do, where you want to live and do you need a second home or move to somewhere else. Answering these questions will help you to plan and manage your expectation.
2. Clear Your Debt
This is extremely important, at least in your last 5 years of working life. If you need $5000 per month during your retirement, then you should pay off whatever your debt.
If you are paying $1,000 for mortgage and$1,000 for car loans, 40% of your retirement fund will need to be set aside.
Mortgage debt, car loan, student loan, personal loan or credit card debt – these are the debts that you should not pay when you retire.
These debts will follow you to your golden years. If you still have more than 10 years to your retirement, consider refinance your home loan and switch to a low-interest loan scheme.
3. Don’t Stop Working
If you are now 5 years to your retirement age and you think you can’t survive on your saving and retirement fund in 5 years time, it is probably the best time to think about working as part-timer later. Alternatively, you could delay your retirement.