Retirement Read Time: 8 min

How Do You Know When To Retire?

How to make sure you’re ready for retirement, whether it’s one year away or ten.

Like most things in life, the retirement of your dreams doesn’t just happen – you have to plan for it. Here are 7 questions – financial and otherwise – you should ask yourself before you leave the workforce for good.

What Income Will You Rely On?

Frequently, the amount of income you receive in retirement is determined by choices you make while you’re working. Before exiting the workforce, make sure you’ve completed all the necessary tasks to secure the retirement income you need.

  • A pension. While increasingly rare, some companies still offer defined benefit contribution plans like pensions, which provide a fixed (“defined”) monthly payment in retirement for as long as you live. That monthly payment will be based primarily on years worked at the company and must be vested (see below), so make sure you don’t retire too soon.
  • Social Security. You can file for Social Security as early as age 62 (for a reduced benefit) or as late as age 70 (for the maximum benefit). As you think about when to file for Social Security, remember your monthly Social Security payment is based on earnings over your 35 highest-earning years – so if you worked for only 30 years, those five years with zero earnings would lower your monthly benefit. We can review with you how various strategies can impact your Social Security income and overall cumulative benefit.
  • Savings. Chances are your savings will be a major source of income in your retirement. Are you comfortable with how much you’ve saved? Are your savings invested in a way to provide you with income for years (and decades) into the future? Just as you don’t want to retire too early and risk running out of savings, you don’t want to continue working longer than is necessary based on fear. We can help make sure your retirement portfolio is positioned correctly for your plans.
  • Working in retirement. Your decision on when to retire might assume that you’ll continue to work (perhaps with fewer hours and responsibilities). There are several benefits to working in retirement, including continued social engagement, potential health insurance coverage and additional contributions to a 401(k) or IRA, but know that your desire – or physical ability – to work at age 50 might be different than at age 70. Working can also affect your Social Security benefit: If you begin benefits before full retirement age (age 66 or 67, depending on when you were born) and make more than a yearly earnings limit ($22,320 in 2024), the Social Security Administration will reduce that year’s benefits accordingly.

 

Have Your Retirement Funds Fully Vested?

It’s worth remembering that funds in an employer-sponsored retirement plan might not be fully yours – at least, not right away. Pensions, retirement plans and stock options often have a vesting period, a period during which employer contributions and benefits remain under the ownership of the employer. The specifics of a vesting period will vary by employer and type of benefit: Some benefits vest immediately, some are drawn out over years and some require a triggering event (like the sale of the company or an IPO) to take effect. In addition to your employer’s Human Resources team, we can review with you the specifics of your benefits plan and if you are fully vested.

 

Do You Have a Plan for Healthcare Coverage?

According to the Department of Health and Human Services, 86% of Medicare recipients are age 65 or older, which makes it one of the most common sources of health insurance among the retired. However, Medicare alone might be insufficient for all your healthcare needs in retirement. Before you retire, be sure to consider the following:

  • Are you retiring before age 65?If so, you will need to plan for health coverage for the period before you’re eligible for Medicare. Early retirement due to health concerns could warrant a disability claim.
  • What is your health history?Do you have an existing or family medical condition that might require additional care as you age? Do members of your family frequently live into their 90s or beyond?
  • Have you planned for healthcare expenses not covered by Medicare? While Medicare covers a broad range of healthcare services, it doesn’t cover such expenses as routine physical exams or most dental or vision care. It also provides very limited coverage for long-term care, which is care for those who can no longer perform everyday activities on their own. The DHHS estimates that nearly 70% of those age 65 or older will require some form of long-term care, which – depending on the services provided – could cost tens of thousands of dollars per year.

If you’re considering retirement and have a high-deductible health plan, you might explore funding a health savings account, which allows you to save pretax earnings into an investment account you can use to pay current and future healthcare expenses.

 

How Much Do You Anticipate Spending in Retirement?

According to the Social Security Administration, retirees spend roughly $28,000 per person per year, with 11% spending $50,000 annually or more. If you anticipate spending on a lot of travel or large expenses in retirement, you might choose to continue working now so you don’t draw down your retirement resources too soon. Continuing to work doesn’t necessarily mean extending your career – it might involve employment that lets you pursue a personal passion.

To calculate your monthly expenses in retirement, start with a good-faith estimate of your living expenses today (Baird Online’s 360 Wealth tool can help with that) and then consider how your lifestyle in retirement might change, including any new leisure time you’ll have available to you. Be sure to factor in nonrecurring expenses such as automobile purchases, travel (including where, when and how often) and new activities you would like to pursue, as well as expenses like healthcare, charitable giving or even supporting your grandchildren’s education. You will also want to ensure you have your debt under control before losing your employment income. We can help you make accurate projections on your retirement spending so you can plan accordingly.

 

Where Will You Live?

One of the first choices retirees will make is where they will spend their golden years. If you plan on moving, think about the cost of living in that new location compared to where you live now, and adjust your budget accordingly. A new location might also bring with it new expenses, and if you plan on moving away from friends and family, you might consider budgeting more for travel plans. Of course, if you plan on owning multiple properties in multiple states, be sure to factor in these decisions for each location.

Where you live in retirement might also impact your tax strategy. Several states have no income tax at all, or limit their to tax to some forms of investment income. In addition, the way retirement income and property are taxed will vary from state to state. Where you’ll live in retirement could influence how long you choose to keep working.

 

What Are Your Spouse’s Plans?

If you are married, you’ll want to factor your spouse’s retirement date when considering your own. If you’re planning on switching your employment benefits to your spouse’s, it’s worth investigating the differences between the two plans – those differences (especially around areas like insurance) might cause you to want to delay or advance your own retirement date. Also, many couples’ retirement plans assume both partners have free time: If one of you is still working, even part-time, how might that affect retirement activities such as travel?

 

Are You Mentally and Emotionally Prepared?

For many people, the adjustment from a 40–60-hour work week to a 0-hour work week can be turbulent, both for the newly retired and their families. As you think about your own retirement date, consider what that transitional period will be like for you. If you thrive on social interaction, how will you replace that energy when you’re no longer working? You might consider easing into retirement, working only a few hours per day as you explore what it’s like having more free time. That might not only provide financial and social rewards, but your employer might appreciate time to adjust to the change.


Whether retirement is a week away or several years down the road, there’s a lot that goes into that decision to explore what comes after a career. We can help you make sure you’ve thought through your retirement date from every angle, so that when you’re ready to start your golden years, you can do so with confidence.

The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.

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