Feeling ready to retire and actually being ready to retire can be two entirely different things. Here’s how to tell if your finances are retirement-ready.

Transitioning from the workplace to retirement is a big life change. It is also a change that shouldn’t be shrouded in mystery and uncertainty over how your finances will provide for you in your retirement years.

Having the means to support your lifestyle on your retirement income isn’t just a nice idea, it’s what provides confidence that you are more than ready to embrace your golden years free from worry. How can you know if your finances are retirement-ready? Here are eight signs that let you know you’re retirement savings is ready to be put to use.

1. You’re debt-free

You don’t want to enter into retirement with outstanding debts. This includes a mortgage, car payments, credit card debt, and other high-interest loans.

2. You know what your expenses will be in retirement

Living on a fixed income can be an adjustment. Therefore, it is very important that you have clearly and accurately estimated what your expenses will be throughout your retirement. Accounting for known expenses like food, utilities, and transportation is just part of it. You will also want to estimate out lifestyle expenses, such as travel and hobbies you want to enjoy in your retirement year, as well as gifts and contributions to current and future grandchildren. Moreover, you’ll want to factor in adjustments for inflation over the course of your retirement years.

3. You have enough money saved to support you for about 30 years

A good rule of thumb is to estimate that you will need about 75% of your current salary when you retire. Of course, if you are planning on special activities that require a great deal of cash, you may really need 100%. That’s why it is important to look at your expenses in different categories and think about how they will change. Generally, you will need about 15 to 20 dollars in your nest egg for each dollar of retirement income that is not covered by any pensions you may receive.

4. You have adequate healthcare coverage and long-term care

Even if you are in good health when you start retirement, you will want to make sure you have enough healthcare coverage for future medical costs and end-of-life care for you and your spouse. While some couples opt for long-term care insurance, others factor their long-term care expenses into their retirement income needs and plan to pay for them directly. Don’t hesitate to contact us to help assess which strategy makes sense for you and your family.

5. You are prepared for the unexpected and the inevitable

We are sometimes subject to blind spots that keep us from seeing potential major financial risks, so having adequate insurance coverage for major risks is essential. Just as important is leaving the legacy we want for our loved ones. Therefore, good estate planning should be a part of your overall financial plan as you head into retirement.

6. Your children are financially independent

You no longer have children dependents that can put a drain on your finances. If you still have children who are financially dependent on you, it will be a good idea to postpone retirement until you are no longer providing for the needs of others besides your spouse.

7. You can postpone collecting your social security benefits

You are eligible to start collecting social security benefits when you turn 62 years of age, but for every year you defer collection up until your seventieth birthday, you can increase your benefit by as much as 3% to 8% per year. If you don’t need your social security benefits right away, that’s generally a pretty good sign your other finances are in good shape.

8. You have a tax efficient plan for retirement

Knowing when and where to withdraw funds for retirement income can be a very important part of your retirement plan. None of us wants to pay any more taxes than necessary. Therefore, having a plan in place can help you pay less taxes and make your retirement resources last longer.

 

While this is by no means an exhaustive list of all the ways to know if you’re financially ready for retirement, it provides a sound starting point for areas you will want to make sure you have thought about.

 

Disclosures

The views provided on this website are intended to provide the investor with an introduction to the company and its investment strategies.

Gantt Financial Advisors, LLC is registered in Alabama only. Nothing on this website should be construed as a solicitation or offer, or recommendation, to buy or sell any security, or as an offer to provide advisory services by the company in any jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. Information on this website is intended only for United States citizens and residents. Nothing contained on this website constitutes investment, legal, tax or other advice, nor should be relied upon in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. A copy of the company’s current written disclosure statement discussing Gantt Financial Advisors, LLC business operations, services, and fees is available from the company upon request.

Have you ever thought about how financial markets work? It may be helpful, as we begin to think about this question, to consider how markets work in other areas of business. People trust markets every day. For example, when we go to the grocery store to buy oranges, we see the current market price per pound. We usually don’t question whether the price is “right” or ‘wrong’. We normally assume the price reflects local market conditions and we accept the price as fair. We may decide the price for the oranges is too much and not make the purchase. If enough of us feel the same way, then the grocery store will lower the price to sell its oranges. That is how markets work.

When it comes to financial markets, people’s perception of how markets work often breaks down because they assume the price of a stock or bond may not be correct. If we assume the price of a stock is not correct, then we have to predict, or forecast, what the correct price should be. The prices that the market produces are based on the opinions and expectations of many, many, highly skilled, highly motivated well-informed experts who trade stocks and bonds on a frequent basis. This results in financial markets that are an effective information-processing machine, and the real time information brought by buyers and sellers helps set prices. The collective estimates of price by so many traders usually produce an accurate price.

So the question arises, how often are professional stock pickers with mutual fund companies able to beat the market itself? Not very often. According to the CRSP Survivor-Bias Free US Mutual Fund Database, provided by the Center for Research in Security Prices, University of Chicago, for the 15 year period ending on December 31, 2014, of the U.S. mutual funds investing in equities, only 19% of the mangers who tried to outsmart other participants through stock picking or market timing were able to outperform their benchmarks.

We avoid trying to outguess the market or chase past performance by letting the markets work for us by investing in low cost asset class funds across different asset classes. Having different asset classes mixed together in a portfolio also generally reduces risks. While we certainly can’t predict the future, history has taught us that the financial markets have rewarded long-term investors.

 

Disclosures

The views provided on this website are intended to provide the investor with an introduction to the company and its investment strategies.

Gantt Financial Advisors, LLC is registered in Alabama only. Nothing on this website should be construed as a solicitation or offer, or recommendation, to buy or sell any security, or as an offer to provide advisory services by the company in any jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. Information on this website is intended only for United States citizens and residents. Nothing contained on this website constitutes investment, legal, tax or other advice, nor should be relied upon in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. A copy of the company’s current written disclosure statement discussing Gantt Financial Advisors, LLC business operations, services, and fees is available from the company upon request.