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In 2016, the average retirement age in the United States was 65 for men and 63 for women, according to Annuity.org, despite the designation of 67 as the “official retirement age” (for people born after 1959).
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But what if you feel more and more resentment about the presence of your work in your life? What if you dreamed of your retirement during working hours? Whether you’re 30, 40, or 60, you might be in a position where you’re ready to retire, especially if you’ve been following the Financial Independence, Early Retirement (FIRE) movement closely.
But beyond feeling as if you were ready to retire, what financial signs could indicate that you are ready to attend your last meeting – forever?
Let’s review some financial signs that indicate your preparation for retirement.
Financial signs that say “ready to retire”
The best combination that says “ready to retire” involves a combination of feeling like you’re emotionally ready and making sure your finances are aligned. Here are the indicators that can help you make this very important decision.
Sign 1: You have paid off your debts.
How much debt should you get rid of before you retire? Ideally, all of that. However, if you still have outstanding debt, here are a few things you can tackle:
- Get rid of credit card debt. High interest credit card debt can hurt the money you have in retirement, especially because you live on a fixed income. The best way to do it? Stop using credit cards and find out which credit card has the highest interest rate. Make the minimum payments on your cards and pay more to the credit card with the highest interest rate. Once you’ve eliminated your highest interest rate credit card, tackle the next highest interest rate card. Think of eliminating your credit card debt as your most important job. You might not be ready to retire if you have a lot of credit card debt.
- Pay off student loans. Do you still have student loans hanging around after your undergrad or the MBA you got later in life? If you are part of the FIRE movement, you probably already know that you should eliminate student loan debt before you retire. However, Americans over 50 owed more than $ 260 billion in student debt in 2018, according to the Federal Reserve. You may have also co-signed loans for children or grandchildren, so remember that debt still matters because you are responsible if your child does not pay off the loan.
- Eliminate payment for your car. Consider whether you need more than one vehicle after you retire. If you have two vehicles and you decide to eliminate one from your fleet, you can sell one car and pay the other with the proceeds. You will probably feel relieved to retire with your royalty-free vehicles.
- Pay off your mortgage. Now this one might get you thinking. After all, there are some tax benefits you do get by dragging your mortgage. Also, interest rates are low right now. However, think about the money you will free up when you stop making mortgage payments. For that reason alone, it may be worth paying off your mortgage before you retire.
Sign 2: You have health insurance.
Whether you are nearing the “traditional” retirement age or like to classify yourself as an individual who embraces the FIRE movement, you still need health insurance.
Consider the following:
- Consolidated Omnibus Reconciliation Law (COBRA): You can enjoy COBRA for 18 months after leaving your job as long as your previous employer offered health insurance and employed more than 20 people. You can use it if you’re currently unemployed and looking for new health insurance, but it’s important to understand that it doesn’t last forever.
- Private health insurance: You can search for private health insurance, which refers to any health insurance coverage offered by a private company instead of a state or federal entity. Learn more about the different types of plans, your reimbursable expenses and the doctors you can consult.
- Sharing programs: You can often find sharing programs that allow you to pay a monthly premium as a member. Money is withdrawn from the shared pool when the healthcare sharing program has to pay for members’ medical expenses. However, be aware that this is not health insurance.
- Affordable Care Act Health Insurance Markets: Many people are taking advantage of Medicare through the Affordable Care Act Medicare Markets. The costs depend on several factors, such as your age, condition, household size, income, tobacco consumption, etc.
- Health Insurance : Most people aged 65 and over are eligible for Medicare, but it is important to know that Medicare does not cover 100% of medical costs. You can purchase an additional plan, such as Medigap and Part D coverage, to help pay for uncovered services, or use a Medicare Advantage plan (offered by private insurers) to fill gaps in coverage.
Having everything in order with your health insurance can be a sign that your retirement strategy is down, but everything else needs to be in place as well. Insurance obviously cannot be the only sign that signals your preparation for retirement.
Sign 3: You have reached the magic number.
The “magic number” refers to how much you have saved. Only you can decide how much money you need to live on in retirement. Unfortunately, the “magic number for retirement” depends on things that are unknowable, like your life expectancy. You can start by considering your current spending and savings levels as well as your retirement lifestyle preferences.
You may be able to withdraw 4% of your retirement savings each year, but remember, you need more. Your personal longevity, combined with a possible less-than-stellar economy going forward, means saving 4% might not be enough. Do your homework to know your ideal withdrawal rate in advance.
These are not the only financial signs
Three financial signs. Sounds too simplistic, eh? These three signs are meant to help get you started on the road to retirement preparation. You may also need to build an emergency fund, have a Social Security claims timeline, understand taxes (including capital gains), budget, and more. However, taking care of your debts, finding health insurance, and understanding how much you need to save can help you take three giant steps in the right direction.