The Final Countdown

Most people look forward to the day they can officially retire — the leisurely afternoons spent with family, taking trips with your spouse and learning a new hobby or two. But, before you can enjoy the post-retirement lifestyle, consumers have to buckle down and consider many factors.

Timing your retirement involves assessing your cash flow needs, evaluating potential sources of income and ensuring financial independence throughout retirement. As you transition from generating income from working to depending on alternative sources of income like Social Security and portfolio returns, being confident in your plan and ability to sustain a lifestyle is paramount.

Contrary to popular belief there is no magic number. A retirement account with $1 million won’t sustain everyone. The amount and timing vary by situation and depend on individual needs and income sources.

To get you started, here are some key factors to consider when determining your retirement date:

  1. Determine a monthly budget – How much will you need to meet monthly expenses and still have adequate discretionary income? A general rule of thumb is 80 percent of pre-retirement income to 4 percent of principal. A client with $1 million can generate $40,000 of income in perpetuity.
  2. Review all sources of income –
    1. Examine Social Security – It’s not always prudent to start collecting Social Security on the first date of eligibility. There are various strategies to consider when timing the collection of this benefit.
    2. Be mindful of pensions – Defined benefit pensions have been phasing out for some time, but they are still available in certain industries, such as public service and education professions, as well as at a few private companies. A defined benefit can make retirement planning different and more complex.
    3. Consider part-time work and income – It’s common for people to transition into retirement gradually by taking on consulting work for a former employer or working a side job to stay busy. Added income in this fashion can significantly alter a plan.
  3. Plan for expenses –
    1. Assess health care needs – Are you old enough to qualify for Medicare or will you need to bridge the gap independently until you reach 65? Typically, the older you are the more expensive health care is.
    2. Remember extra expenses – With more time to travel and check goals off your bucket list, it’s important to keep in mind that people often spend a little more in their first few years of retirement.
    3. Reflect and talk with your spouse to determine benevolent goals – Do you want to fund a grandchild’s college education or supplement their tuition costs? It is most important to factor these larger expenses into a plan in advance.

Timing retirement is not cookie-cutter and will not be the same process for everyone. However, what remains uniform across all lifestyles and demographics is the need to start early, plan ahead and be prudent.

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