- If you have 10 times your annual take-home pay saved, you might be ready to retire.
- If the 4% rule will give you enough to cover your expenses, you have enough saved.
- And, if you’re ready, you won’t depend on Social Security payments and will have your debt paid off.
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Retirement planning doesn’t look the same for any two people, but there are some ways to know that you’re ready financially before you leave work.
Insider talked to three financial planners about the signs they see when clients are ready to retire.
According to their experience, you’ll start to notice these six things if you’re ready to retire.
1. You won’t be dependent on Social Security payments
If you’ve run the numbers and you won’t be depending on Social Security payments much, you might be ready to leave work, says financial planner Jovan Johnson of Piece of Wealth Planning.
“For somebody trying to reach retirement, the goal should be to have enough money to retire comfortably. And if you do receive Social Security, that’s just icing on the cake,” he said.
Ultimately, being self-reliant in retirement is the best way to be sure you’ll be comfortable.
2. You have 10 times your annual take-home pay saved for retirement
Financial planner John Bovard of Incline Wealth recommends a simple rule to judge retirement readiness.
“One quick rule of thumb if you’re looking at what dollar amount you need to have saved, I would say would be 10 times your net take-home pay,” he said.
By multiplying your annual net take-home pay by 10, you may have enough saved to retire comfortably.
3. The 4% rule works for your monthly budget
A favorite way for financial planners to make a ballpark estimate on how much you’ll need to retire is the 4% rule, where you withdraw 4% of your portfolio each year in retirement. From there, you can divide that amount by 12 to make sure it fits your monthly budget.
“If you can withdraw 4% of your retirement balance every year, plus your Social Security, and if that number can replace your take-home pay, then you’re in a good spot to be able to retire,” Bovard said.
This rule can also be used inversely to figure out how much you need to have saved. Multiplying your desired annual income by 25 can give you the amount you’d need to withdraw 4% each year and live comfortably. Reaching that figure could be a sign that you’re ready to retire.
4. You can afford to pay for healthcare and know what it will cost
If you’ve thought about how you’ll cover healthcare in retirement, you’re likely in good shape to retire.
Healthcare is a massive expense, and it’s even bigger if you’re thinking about retiring early. “What keeps people working the majority of the time is being Medicare-eligible,” Bovard said, which doesn’t happen until age 65.
“Look not only at your regular treatments, but be very aware of what prescription drugs you’re taking,” he said. These can be big expenses that add up, and knowing how much you could potentially need to spend will be critical. You’ll need to add up how much it will cost you to afford coverage until age 65, prescription drug costs (which may not be covered under Medicare), and routine needs.
5. You’ve paid off debt, including your mortgage
Paying off debt is one of the traditional signs you’re ready to retire, and it’s one financial planners say is critical, too.
Johnson recommends having your mortgage paid off as a first step. “I lean towards when somebody has their mortgage paid off, because we all know that’s the biggest thing that hurts people in retirement,” he said.
Other types of debt, like auto loans, can also be detrimental in retirement. Paying off these loans can be a good first step towards retiring.
“Once they have that paid off and they have no student loans, that puts them in a great position,” he said. “I feel like they are in a better position to retire because they don’t have to worry about debt, and their expenses decrease so much.”
6. You’ve made a detailed budget for retirement, and it works with what you expect to bring in each month
Financial planner Corbin Blackwell with Betterment for Business says that she likes to see clients have a very detailed budget before they retire.
“I would say the biggest one is making sure you have thought through your retirement budget, and in-depth thought it through,” she said. You know exactly what you’re spending and where you’ll cut back and spend less in retirement.
To start making a budget, it’s a good idea to take a look at your current expenses. Then, you can start to see how they’ll change in retirement, where you can save more, and what will be more important to you later on.