Investing & Retirement
9 Warning Signs You Aren’t Prepared for Retirement
Do you have enough saved to comfortably retire? Will you be able to afford it? If you don’t know, taking the leap into retirement can lead you into a sinkhole of stress and worry — not exactly the days in the sun you envision.
In 2010, almost 30% of working people 55 and older had less than $10,000 saved for their retirement. Things haven’t improved much in the last three years, either. If you’re getting into your twilight years, here are some big signs you just aren’t prepared to retire.
1. You haven’t done the math yet
Do you know how much you’re going to need to cover daily expenses, medical bills, travel and holidays? Without doing the math, you’re ill-prepared to actually give up your job and rely on your savings, pension or Social Security benefits.
The good news is you can get a handle on things now by using online tools and calculators to figure out exactly how much you’re going to need and what sort of lifestyle you’ll be able to afford when you retire.
2. The recession hit your retirement funds hard
If your retirement savings were cut in half 50% during the recession, you’re not alone. The AARP found that 25% of older workers had their retirement savings destroyed by the recession, burning through what they had saved to overcome job loss, foreclosure and other problems.
If you’ve lost 30% or more of your savings and you’re thinking about retiring, you may have more risk than you can handle. It’s possible you should invest less in stocks and high-risk investments and change the way your funds are allocated.
3. You lost your pension
This is another common scenario as the economy recovers from the recession. It may not be all bad news, however. Find out if your pension was terminated or frozen. If your employer filed for bankruptcy instead of freezing or shrinking your pension, you’re probably better off. Employee pensions are covered by the government’s Pension Benefit Guaranty Corporation after a bankruptcy filing.
4. You have substantial debt
Nothing drags down retirement faster than being saddled with debt. Do you have a lot of credit card or mortgage debt that you’ll be paying on into your retirement? Do you have the savings to cover these debts as well as your living expenses when you’re no longer working?
Get ahead of the problem before you retire by cutting down your spending to get cash to pay down the debt. You may want to downsize to a smaller, more affordable home.
5. You love to spend money
Do you view retirement as your chance to live the good life, but you don’t know if you’ll have the funds to pay for all of the cruises and adventures you have planned? If you want to spend in your retirement, and you’re in good health, it’s probably a good idea to delay retirement and work beyond 65 to make sure you can afford the luxuries you want. You may also think about taking a part-time job you enjoy after you retire to fund the vacations you’re envisioning.
6. You’re just at eligibility age
Unfortunately, a lot of workers decide to hit their retirement funds and take the plunge as soon as they hit 59 1/2, the age at which they won’t pay penalties. Even more choose to retire at 62 when they’re eligible for early Social Security benefits, even though they’re leaving a lot of money on the table by not waiting until full retirement age.
The age at which you retire is a major decision, and can’t be reversed in many cases. If you file for early Social Security benefits at 62, for example, you lock yourself into lower benefits and you can never change this. If you tap into your retirement funds at 60, you may blow through the money sooner than you expected, forcing you back to work.
Remember: Your Social Security benefits will gain 8% every year you delay filing. Unlike pensions, your Social Security benefits are also inflation-adjusted.
7. You’re counting on part-time employment after you retire
Are you one of countless people planning on working part-time in retirement? While some do it just to keep busy, many people count on a part-time job to cover living expenses.
Counting on landing a job is a big sign you’re not financially ready for retirement, because you should never bet on being able to find work. Many people realize too late how hard it is to return to work when they need to, or even find a part-time job capable of supplementing retirement income.
If you’re in this boat, hang on to your full-time job as long as possible, especially if your employer provides a pension or matching retirement contributions.
8. Your spouse isn’t ready for you to retire
Successful retirement is a lot like a marriage, and the first year of retirement is usually the hardest. If your spouse or partner is telling you they don’t want you to retire yet, it’s important to find out if they have emotional or financial concerns and resolve them before you actually retire.
9. You haven’t planned for health care expenses
Health care costs have been rising faster than inflation for years, and many retirees face unanticipated expenses. Premiums and co-pays can easily surpass $25,000 per year, and too many people retire before 65 only to find out how erosive medical costs can be on retirement savings.
If any of these signs sound like they fit your situation, it may be time to take a step back and reexamine your retirement plan and decide if you can really afford to retire as soon as you’d like.