It's tough to tell whether you're actually ready to retire, because everyone's financial situation looks different. There's no set amount you should have in savings, or a certain age you should retire. Retirement looks different for everybody, so it's important to look at your unique situation when deciding whether you're prepared for retirement.
Before you decide to leave your job, make sure you've done these four things to make sure you're truly ready to retire.
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1. Double-check that you're on track to reach your savings goal
Running out of money is perhaps the biggest concern among retirees, and it's a legitimate one. The average adult age 65 and older spends roughly $46,000 per year, according to the Bureau of Labor Statistics. And yet the average baby boomer has just $152,000 in savings, a report from the Transamerica Center for Retirement Studies found. By spending at that rate, a retirement fund that size will run dry in approximately three years.
Before you retire, use a retirement calculator to estimate how much you should have saved. If the numbers line up and your nest egg matches (or is at least close to) the amount the calculator says you should have, you're right on target. But if you're hundreds of thousands of dollars short of where you should be, you might reconsider retiring right now.
If your savings are off track, you can either work a few more years to build a stronger retirement fund, or you can adjust your retirement expectations so you can afford to get by on less during your golden years.
2. Make sure you've got healthcare costs covered
Even if you're covered by Medicare in retirement, healthcare isn't free. If you're enrolled in Original Medicare (or Parts A and B), you'll be responsible for both premiums and deductibles. You typically won't pay a premium for Part A, but the standard Part B premium is around $135 per month. You'll also face a deductible of $1,364 per benefit period for Part A, as well as a $185 deductible for Part B.
Also, Parts A and B only cover hospital visits, general doctor visits, and other outpatient care that's considered medically necessary. Original Medicare doesn't cover routine dental or vision, and it also doesn't provide coverage for prescription drugs. For that, you'll need to find additional coverage (at an additional cost) through options like Medicare Part D or a Medicare Advantage plan.
All of these costs add up, and the average retiree spends around $4,300 per year on out-of-pocket healthcare expenses, a study from the Center for Retirement Research at Boston College found. Before you retire, make sure you've accounted for these costs. And if you typically face hefty medical bills or are dealing with a chronic health condition, you might need to budget more than you think for healthcare in retirement.
3. Have a Social Security strategy in place
Social Security benefits are an important part of your retirement strategy, so it's important to figure out when is the best time to claim them. If you claim at your full retirement age (FRA), you'll receive the full benefit amount you're entitled to. But if you claim before that (as early as age 62), your checks will be permanently reduced by up to 30%. On the other hand, if you wait until after your FRA to claim (up to age 70), you'll receive up to 32% more on top of your full amount each month.
In theory, it shouldn't matter what age you claim benefits because if you live an average lifespan, your benefits should even out in the end. You'll either receive more smaller checks or fewer bigger checks. But sometimes it pays to claim at a certain age. For instance, if you expect to live a longer-than-average lifespan, it might be a good idea to wait as long as you can to begin claiming so you can take advantage of those bigger checks for the rest of your life. Or if you have a solid retirement fund and don't necessarily need the extra money, you may choose to claim at 62 to start enjoying your golden years as soon as possible.
If you're married and your spouse is also eligible to collect benefits, it's a good idea to strategize with him or her to decide when you both should claim. For instance, some couples may decide to have the lower-earning spouse start claiming early while the higher-earning spouse delays benefits. Regardless of when you choose to claim, having a strategy behind your decision can ensure you're maximizing your benefits.
4. Think about whether you're emotionally ready to retire
Retirement is about more than just finances. It's a major life change, and if you're not mentally ready for it, you may end up miserable.
Think about how you intend to spend all your free time in retirement. The first few years after you leave your job may be a dream, as you'll probably be busy checking off all the bucket-list activities you've been itching to do for ages. But what about when you enter your 70s, 80s, or beyond? Will you have enough activities to keep you busy for decades throughout retirement?
Maintaining a strong social circle is also critical in retirement, as it's easy to become socially isolated when you no longer have co-workers to keep you company throughout the day. Some researchers claim social isolation and loneliness can be as physically harmful as smoking 15 cigarettes per day, and older adults are at an increased risk of feeling isolated if they don't have a healthy social circle. So before you retire, plan for how you'll stay busy. You don't need to account for every minute of retirement, of course, but having a general idea of how you'll spend your time can stave off loneliness and boredom.
Retirement can be one of the best or worst times of your life, depending on how prepared you are for it. By taking a few steps to make sure you're as ready as possible, you can ensure your retirement is the best it can be.
