When you start thinking about retiring, the fantasy is often a simple one. It’s the blissful end to waking up at 6:00 a.m. to a blaring alarm, the liberation from a stressful commute, and freedom from all those tiring and long hours at a job you probably tolerate more than love. The dream is to reclaim your time as your own. But oftentimes, the reality of making that transition is really not that simple, especially since most of us, if we had the option, would definitely retire at 25 and spend our days traveling the world. That alluring dream, however, clashes with the practicalities of funding a life that could last for another 30, 40, or even 50 years.
In reality, what it really takes to retire is a solid and comprehensive grasp of your budget and a carefully considered investment and spending plan for your life savings. It’s about moving from a mindset of accumulation to one of strategic distribution. Added to that, there’s also debt that’s under control, and most importantly, a plan you are actually excited about for how you really want to spend your days. Retirement isn’t just an ending; it’s a new beginning that requires its own blueprint for fulfillment and financial stability. Having that in mind, here are 10 of the most important signs you’re not ready to retire yet and may need a bit more time to prepare.
Struggling to pay current bills
Well, it goes without saying that if you are really struggling to pay your bills with a paycheck from work, then retiring won’t make things any easier. If your current income barely covers your expenses, removing that income stream without a robust replacement is a recipe for financial distress. As a general rule, financial experts suggest that seniors need around 75% to 85% of their pre-retirement income to fully enjoy a comfortable retirement. This figure accounts for some costs going down, but others potentially rising.
That income generally comes from a variety of sources, including Social Security, employer-sponsored retirement plans like 401(k)s, personal savings in Individual Retirement Accounts (IRAs), a traditional pension if you’re fortunate enough to have one, and other types of savings and investments. And what you need to ask yourself is if these sources, when combined, will give you enough reliable, consistent income to meet your essential obligations and still have enough left over to enjoy your free time. This isn’t a “back-of-the-napkin” calculation; it requires a detailed analysis.
Because here’s the thing, while work-related costs like commuting, a professional wardrobe, and dry-cleaning expenses could decrease or disappear entirely, other costs will likely emerge or increase. You might find yourself spending more on hobbies, entertainment, and travel to fill the days. It’s also incredibly important to take future taxes and ever-increasing healthcare expenses into consideration, as these are two of the biggest financial hurdles for retirees.
Don’t assume your financial obligations will be tax-free. Your Social Security check could be taxable, depending on your overall “combined income,” which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. The vast majority of traditional pensions are fully taxable at your ordinary income tax rate. Furthermore, withdrawals from traditional 401(k)s and traditional IRAs can also be taxed as ordinary income, potentially pushing you into a higher tax bracket than you anticipated.
High level of debt
Carrying huge amounts of debt, particularly high-interest consumer debt, into retirement could severely strain your savings and compromise your financial security once you stop working. The payments that felt manageable with a steady paycheck can quickly become an anchor weighing down your portfolio. If you can, we recommend you aggressively work to reduce or eliminate credit card payments, personal loans, or even car loans before you hand in your notice. Depending on this situation, paying off your mortgage or downsizing to a smaller, less expensive home could also help in the long run by significantly reducing your monthly overhead.
Paying down your debt before retiring could also imply working more years than you would prefer, but the long-term benefit often outweighs the short-term sacrifice. Think of it as a strategic investment in your future peace of mind. It could likely be worth it for the sense of ease and freedom that comes with not having all those monthly payments hanging above your head. Getting rid of debt, however, including your mortgage, would imply getting rid of interest payments that can also take a massive toll on your long-term finances. Freeing up that cash flow gives you more flexibility to handle unexpected costs and pursue your retirement dreams without guilt or stress.
No plan for future major expenses
The last thing you want is to wait until you have retired to address huge and foreseeable expenses like replacing your roof, repaving the driveway, upgrading your home’s HVAC system, or even buying a vacation home or a new car. These aren’t minor, unexpected repairs; they are significant capital expenditures that should be planned for well in advance. These larger expenses can easily add up and cause a major financial shock, especially when funds are withdrawn from taxable retirement accounts and taxes are required to be paid on every single dollar you take out.
We also encourage clients to tackle bigger expenses before retirement whenever possible, especially since the impact on their investment portfolio can be quite significant. Withdrawing a large lump sum early in retirement can expose you to “sequence of returns risk,” where a market downturn in the early years disproportionately damages your portfolio’s longevity. Let’s say you need a new roof, which would add to $7,000, a new driveway, which will cost you $4,000, and a new car ($10,000 down and $300 per month). Planning for these with a dedicated “sinking fund” while you’re still earning an income is a much safer approach.
All these purchases require $21,000 upfront, which means that you need to take almost $28,000 in pre-tax withdrawals from your retirement account, and that only if you are in the 24% federal tax bracket. This doesn’t even account for potential state income taxes, which could push the required withdrawal amount even higher. This simple example illustrates how quickly planned expenses can deplete a nest egg if they aren’t budgeted for separately and strategically.
An unknown Social Security Benefit
Since you might not be relying on Social Security to meet the wide majority of your expenses, you shouldn’t ignore it, either. For many Americans, Social Security is a foundational piece of their retirement income puzzle, providing a steady, inflation-adjusted stream of cash for life. If you are like most people out there, and you haven’t yet estimated how much your benefit will be, then the Social Security Administration has a handy tool to help you make that type of calculation. You can create a “my Social Security” account on their official website to see your full earnings history and get a personalized estimate of your benefits at different claiming ages.
Walters also adds that if you haven’t reached full retirement age for Social Security (FRA), which is also the age at which you can collect your maximum Social Security monthly benefit, you might want to postpone retirement until you do so. Your FRA is based on your birth year; for most people approaching retirement now, it’s between 66 and 67. Understanding your specific FRA is a critical first step in making an informed claiming decision.
The timing of your claim has a permanent impact on your monthly payments. If you start claiming Social Security checks as early as 62 years old, your monthly checks might be permanently reduced by as much as 30% compared to what you’d receive if you actually wait until you reach full retirement age. Conversely, for every year you delay claiming past your FRA (up to age 70), your benefit increases by about 8%. This delayed retirement credit can result in a significantly larger monthly check for the rest of your life, providing a powerful hedge against longevity risk.
No monthly financial plan
As soon as you retire, the predictable rhythm of bi-weekly or monthly paychecks automatically stops arriving, obviously. We can’t say the same thing about the bills. This transition from accumulating wealth to distributing it requires a fundamental shift in financial management. Therefore, you will absolutely need to map out your monthly cash flow before you retire. Planning your monthly cash flow also means considering when you will start drawing Social Security benefits and exactly how much you will receive, besides how much you will withdraw from your personal retirement accounts and in exactly what order. You are, in effect, creating your own paycheck.
This process should involve a detailed retirement budget, accounting for everything from housing and healthcare to travel and taxes. If you possess a traditional IRA and a Roth IRA, for instance, you need to think about the taxes and also the required minimum distributions (RMDs), on your traditional IRA withdrawals and how that could affect your Roth IRA withdrawals, which won’t even be taxed and aren’t subject to RMDs. A strategic withdrawal plan, sometimes called “tax-efficient distribution,” involves drawing from different account types in a specific order to minimize your tax burden over the long term. Without this plan, you risk paying more in taxes than necessary or withdrawing money inefficiently.
No long-term financial plan
Beyond the monthly budget, a comprehensive long-term financial plan is essential. You should be able to understand how long your savings will last and what will happen exactly with the lifestyle you are able to maintain over the coming decades. No one knows exactly how long they will live, but with higher lifespans and increasingly higher costs of long-term care, there is a very real risk of outliving your money. This “longevity risk” means your portfolio will have to last longer and stretch further than you once thought.
There’s also an ongoing debate about how much you should actually withdraw from your portfolio every single year to ensure it lasts. There’s the popular 4% rule, which basically states you can tap 4% of your retirement assets in the first year and adjust that amount for inflation each subsequent year. That one is projected to allow your money to last a minimum of 30 years in most historical market scenarios. However, in today’s lower-return environment, many financial planners argue for a more conservative rate, perhaps closer to 3.5%, or a more dynamic approach that adjusts withdrawals based on market performance. A solid plan will address this and include stress tests for various scenarios.
Not accounting for inflation
Inflation, the silent thief of purchasing power, will definitely affect your day-to-day expenses and the overall value of your life savings. Even a seemingly modest inflation rate of 3% would also imply your expenses will double in less than 25 years, which is well within a typical retirement period. This means that the $5,000 you budget for monthly expenses today could require $10,000 a month two decades from now just to maintain the same standard of living. Your retirement plan must account for this steady erosion of value.
The recent past has shown that inflation can be far from modest. The current inflation rate is way higher: 8.3% in August 2022 inflation rate was 8.3%, which is less than the June 2022 stats. This kind of spike serves as a stark reminder of inflation’s destructive power. Now, deciding to overlook these details is probably one of the most common and dangerous retirement planning mistakes one can make and could have serious long-term implications if not properly accounted for. A solid plan incorporates inflation-adjusted growth projections and may include investments like stocks, real estate, or Treasury Inflation-Protected Securities (TIPS) that can help your portfolio keep pace with rising costs.
Not rebalancing your portfolio
Deciding on a passive “set it and forget it” approach to investing might work when you are way younger and have a lot of time to make up for any market downturns that could hurt your portfolio. You have decades of earning years to recover from losses. However, as you approach and enter retirement, it can be quite smart to rebalance your portfolio annually, or whenever it deviates significantly from your target, and focus on a dual strategy of income generation and asset protection.
There’s also an accepted wisdom about how retirees are advised to manage their portfolios: diversifying, preserving capital, earning income, and avoiding unnecessary risk. Well, diversifying across a wide variety of asset classes (like stocks, bonds, and real estate) but also industry sectors, whether it’s healthcare, technology, and so on, would help protect your portfolio’s value when the market declines. This is because one instrument or asset class could perform well when the other one isn’t. Rebalancing is the discipline of selling some of your winners and buying more of your underperformers to return to your desired asset allocation, preventing you from becoming over-exposed to risk after a long bull market, for instance.
Retirement worries you
What if you have your portfolio in top shape, your debt is gone, and your budget is flawless, and you still don’t feel ready to let go of your working life? This is far more common than people think. Work provides more than a paycheck; it offers structure, purpose, social interaction, and a core part of your identity. After decades in a career, the thought of all that unstructured time can become quite anxious, rather than exciting.
If this sounds anything like you, it’s a sign that you need to plan for the non-financial aspects of retirement. Just think about pursuing a “second act” venture, like consulting in your old field, working part-time in a low-stress job you enjoy, or even becoming a dedicated volunteer for an organization you truly care about. These activities can provide the routine and sense of purpose you might be missing. If you simply retire without a plan for your time, you might overspend in an effort to combat boredom and run through your savings faster than you initially planned. A fulfilling retirement requires a plan for your days, not just your dollars.
Ultimately, being truly ready for retirement is a holistic state. It’s the intersection of financial preparedness, practical planning for future needs, and emotional readiness for a major life transition. Ensuring you have addressed all these areas will give you the confidence to step into your next chapter with excitement and peace of mind.
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