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  • Nate Carter

Ready to Retire? Answer These Eight Questions

The key to a successful retirement is proper planning. There will always be some bumps along the way, but the right plan will help avoid unpleasant surprises. Below are eight questions to ask yourself on expenses, passive income, and post-retirement working options to see if you are ready to retire.


Spending and Expenses


During our working years most of us focus on investing to grow our retirement portfolios. But once we retire our focus shifts to managing cash flow to cover expenses. This requires an accurate understanding of our monthly spending and thinking through how our spending changes as we age. Answering these first two questions will help you prepare for your expenses in retirement.


1. What are my monthly expenses and will this figure change significantly in the future? Consider the costs of paying for your children's education or weddings, caring for elderly parents, future home improvements or repairs, as well as taking a dream vacation. Your housing expenses may also change if you downsize to a smaller home or move to a less expensive part of the country. You need to factor in all of these expenses in to your retirement budget.


2. Have you budgeted for the cost of future health care needs? Rising health care costs can derail retirement plans. Fidelity Investments estimates a 65-year old couple will need $295,000 to cover their future health care needs. Make sure your budget can support the future cost of health care before you retire.

Passive Income


Once you understand your monthly expenses in retirement you can determine if your passive income in retirement is sufficient to cover these costs. Passive income is the income you earn without having to actively work in a job. This includes withdrawals from retirement accounts like a 401(k) or an Individual Retirement Account. It also includes any pensions, annuities and rents from rental properties. You want to be a little conservative in your estimates to ensure you do not outlive your money in retirement. You will have far fewer options to create new income in your late eighties or early nineties.


In the last few years, the dramatic rise in real estate prices and equities has helped many soon-to-be retirees reach their financial goals early. But markets that rise can also quickly decline, catching retirees off guard. The book Become Loaded for Life provides strategies for navigating these risks, including more serious recessions, without jeopardizing your retirement. The book also teaches you to factor in the rising cost of inflation which will decrease the purchasing power of your dollars over time.


As you plan your retirement one of the passive income streams you will include is your Social Security Retirement Benefits. If you are afraid that you have not saved enough for retirement, delaying Social Security a few years will provide you with a higher monthly benefit. Each year you delay until age 70 increases your monthly benefits by 8% providing you with more income. As you consider your passive income options, answer these three questions.


3. How much will you earn each month from your retirement accounts, pensions, annuities, rental income or other source of passive income?


4. Are your passive income investments able to weather a major market downturn and what strategies are you using to protect yourself from this risk?


5. At what age will you begin taking Social Security Retirement Benefits and if you are part of a couple, will one of you delay your benefits for a higher payment?


Part-Time Work or Starting a Small Business


To supplement their passive income, many retirees hope to work part-time or to turn a hobby into an income stream. Even a modest amount of work-related income will go a long way to supporting your cash flow in retirement. If you intend to start a small business, this venture will incur expenses that need to be covered in your retirement budget. Also consider if there are any factors that would prevent you from working full-time such as health issues or lack of adequate credit or training to start the business you desire. Be sure to prepare for this transition well before you quit your job so you can make a seamless switch once you retire. To manage this aspect of your retirement answer these three questions.


6. How much will you earn from working part-time or starting a small business once you retire?


7. What are the costs in starting a business or taking on part-time work and are there any factors that would prevent you from being able follow through with your plan?


8. When do you plan to stop working completely and can your budget handle this loss of income?


Do not overlook the importance of pre-retirement planning. Remember the goal for a happy retirement is to not be stressed about money. Work through these eight questions to ensure that you are well prepared to retire.


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