Can I Retire? How Do I Know?

Can I Retire? How Do I Know?Have you ever asked yourself, “Can I Retire?” or “When Can I Retire?” or “How Do I Know When I can Retire?”. Do you know that there is only 5% of the population in the world today can really retire FINANCIALLY independent?

Can I Retire?

It is no longer an option for people to retire but most of the people cannot go for their retirement as they are not ready.
Taking an example that you are going to live until 75 years old. You are 25 today and have just started working.
Let’s also assume that you will retire at the age of 55. In this scenario, you are going through two main phases:-
  1. Accumulation phase, in which is your period of working years (25 – 55 years old, 30 years of working).
  2. Consumption phase, in which is your period where you will “consume” when you live on (25 – 75 years old).
This mathematical equation simply means you will have 30 years of working life, and 20 years of consuming your savings when you retire – saving that you will be accumulated when you work for the next 30 years.
Taking into account the inflation rate, this also means you will have work continuously for the next 30 years in order to save enough retirement fund for the next 20 years that you will be consuming when you are not working.
In average, you will need a minimum of 50% of your last drawn salary (if you are not self-employed) when you retire.
Remember that your last drawn income maybe your highest salary in your working life. Assuming your last drawn salary is $10,000. That means you will need $5,000 every month from the start of your retirement.
Can I Retire? How Do I Know?
Let me ask you the next question, how much do you save from your current salary? Majority saves only 25% of their salaries because of all the commitments – house loan, car loan, daily expenses, health care, kid’s education, insurance, unforeseen events and etc, You are having a shortfall of 25% in your saving for the retirement.
Do You want the fact? In the U.S, 38 million working-age households do not have any retirement assets.
For those who are 10-years away from their retirement age, the median saving is $12,000 and of the people between 55 and 64, one-third of the people in this group have not saved a single cent for retirement.
Some financial planners advice people who are not prepared for their retirement to at least sell their houses and lower their living standard by moving to a cheaper neighborhood.
To be honest, there are still a lot of people do not own any properties and they have been slaving all their lives to have enough to eat.

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?

Can I Retire? How Do I Know?

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?

Can I Retire? How Do I Know?

I know part of your salary goes to Social Security but this is not what you should count on!!

There are several strategies to get yourself ready to retirement.

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.

Can I Retire? How Do I Know?
Do not freak out, it is never too late to start planning and saving today. I guess it is time to sit down, take a white paper out and start do the accounting.

Regards,

Alex

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Can I Retire? How Do I Know?

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2 Responses

  1. michael says:

    I am 30 years old, I have yet to think about retirement so I think now might be a good idea.

    We do have work initiatives in my country, but I don’t think it will be enough for when I actually need it.

    Thanks for the information, and there are some great tests I can take on this website.

    • Alex Y says:

      Hi Michael,

      Social security and pension fund provided by the government are no longer sufficient for most of the people. One needs to really plan ahead for retirement. You are lucky as you are 30 this year, it is always better to start as early as possible!

      I hope you enjoy your read here.

      Regards,
      Alex

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