When Is The Right Time To Retire?

Retirement is the decision of a lifetime, and the right time to embark on it is different for everyone. Of course, financial circumstances are of tremendous significance in making a choice, but it is also essential that you are both emotionally and mentally ready to retire. If you are thinking about retiring, there are several factors you should consider. 

Your Finances

Retirement requires you to have the appropriate savings and income to support a comfortable lifestyle into the future. This means you will need to have an accurate and practical understanding of your expenses and how much you will need to cover them. This includes income from savings, pensions, 401ks, IRAs, social security, and other assets. A common algorithm for retirement planning is to accrue savings 25 times the amount of your annual expenses. Remember that the earlier you plan to retire, the larger your nest egg will need to be. In addition, delaying retirement for a few years can allow you to build more financial security through tax-advantaged investment accounts. 

Did You Know? 

Inflation at 3% per year could reduce the purchasing power of your income by more than 25% in ten years.

Company Valuation

As a business owner, obtaining an accurate valuation of your company can help drive your decision about retirement timing. If the market and economic climate are ripe to maximize your value in a sale versus waiting a couple more years, you may want to consider retiring while you can still get the most money in return for your company. Your company valuation can also help you decide if there is the opportunity to pursue growth strategies that can boost the business’s value so that you can sell for more money in a few years. 

The Economy

The COVID-19 pandemic has turned the economy upside down, but recovery is underway. It would be great to have a crystal ball to tell us the economy’s future, but we have to hope for the best. If there are signs of another economic downturn, you might want to hold off on the retirement plans until markets recover so that you can recoup your invested assets and retire with a better financial position. The economy will also affect your business’s market value if you plan on selling it as part of your exit strategy. If you are not selling your company but plan to turn it over to the family under a succession plan, you will need to make sure your family member(s) is ready and willing to take the reigns and that everyone is on the same page regarding the plans for the future. 

Debt

Your retirement income should be used for current expenses instead of past expenses. The last thing you want to do is head into retirement with outstanding debt in the form of high-interest credit cards or outstanding loans (other than from a mortgage or vehicle financing that can count under your needed expenses). 

Health and Insurance

Health can play a significant role when considering retirement. Think about your current medical needs, if you are physically able to continue working, and your health insurance coverage. If you have coverage through your company, you will need to have a plan to replace it when you retire, depending on where you live. If your country of residence provides universal healthcare coverage, you don’t need to worry about this. However, if you live in a nation without public healthcare, such as the United States, you will need to determine if you qualify for government medical benefits after a certain age or if you will need to purchase your private health insurance. 

Did You Know?

The United Arab Emirates has the lowest average retirement age in the world at 49. 

Emergency Planning

You will need to have a plan for your everyday living expenses, but it is wise to have an emergency plan in place as a backup, just in case. One way to do this is to have a separate savings account that can only be used for emergencies. A plan for this can go a long way for your peace of mind.   

Staying Busy 

Think about how you plan to spend your time after you retire. Many retire only to find out that they’re now bored, which can make the best time of your life a bit of a disappointment. Nevertheless, retirement is something you should look forward to. Whether you want to travel the world or enjoy time at home with your family, it is a good idea to have a plan. Maybe you would prefer to invest in other business ventures after you retire so you can still be a part of something without bearing all the responsibility of ownership. In any case, you should be prepared for your new lifestyle, and the free time you will have on your hands. 

Did You Know?

55% of workers plan to work during retirement, with 72% citing “healthy aging reasons” such as staying active and maintaining social connections. 

Social Support

Once you retire, you are going to face a different social landscape. If your social life is inextricably linked to your work life, this can come as a shock. You should ensure a social life outside of work to avoid feelings of loneliness or lack of purpose. Look for ways to be part of some social network or community before retiring, such as joining a club, activity league, or volunteer organization, to make the transition more accessible and enjoyable. 

Did You Know?

53% of men plan to golf at least a few times a year in retirement, and 64% of women say they plan to volunteer in retirement.