5 signs you're really ready to retire
Savings are crucial for retirement because you can't live on Social Security alone
Retirement costs soar amid rising prices, inflation concerns
The Social Security Administration is considering raising retirement payments next year to offset rising inflation. FOX Business' Lydia Hu with more.
Are you counting the days until you can hand in your notice and leave the working world for good? Before you give up a paycheck, it's best to make certain you can really support yourself without income from an employer.
While it can be hard to make that assessment, watch for these five signs that suggest it's the right time for you to retire.
IT'S TIME TO TALK TO YOUR SPOUSE ABOUT RETIREMENT. HERE'S HOW TO START.
1. You have plenty of money saved
Savings are crucial for retirement because you can't live on Social Security alone. You'll want to be certain you have enough invested that your nest egg will produce sufficient income for you for the rest of your life.
The exact amount you'll need can vary depending on your spending habits as a retiree, the age at which you'll retire, and the other income sources you'll have.
A good rule of thumb is to aim for 10 times your final salary, but you may want to dig into the specifics and find out exactly how much income your investments will safely produce and compare that to your needs before retiring.
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2. You know your withdrawal rate
You can't afford to withdraw too much from your retirement accounts too soon, or you risk those accounts running dry while you're still dependent on them. So before retiring, decide on a safe withdrawal rate.
Experts traditionally recommended following the 4% rule, which stipulates you can withdraw 4% of your balance in year one and adjust upward based on inflation each year without risking running short. Lower projected future returns and longer life expectancies have made this rule outdated, though, so choosing a different percentage or another approach may be best.
Once you know your withdrawal rate, you can see exactly how much income your investments will provide and make sure it's sufficient.
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3. You have a Social Security claiming strategy
Social Security benefits work together with your savings to support you. These can be claimed as soon as age 62, but you don't necessarily want to file for them so young.
Before you quit work, make sure you understand how Social Security benefits are calculated as well as the impact of filing on time for benefits, claiming them early, or making a delayed claim. You can sign into your mySocialSecurity account to see what your benefits would be at different ages to help you make that choice.
Once you've chosen your claiming strategy, you can decide if you need to wait longer to retire in order to claim at your desired age.
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4. You've made a budget
Making a budget helps you see how far your retirement money will go -- and if it will stretch enough to fully support you. Factor in all the new costs you may incur, including travel expenses and the costs of any new hobbies you may want to indulge in as a retiree.
Your budget may show that your savings and Social Security provide plenty of income to support you -- but it may also reveal you'll fall short and might not be ready to retire.
5. You understand the tax rules
Finally, you need to know how you'll be taxed as a retiree so you can see how much income will be left over -- and whether relocating may be worth it.
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Some states have more favorable tax rules for seniors than others, so research what local taxes and federal taxes you'll be responsible for. Then make a choice about where you'll spend your later years and see if you'll have enough after-tax income to fund your retirement.
By taking these steps, you'll hopefully confirm you're really ready to retire and you won't find yourself faced with financial regrets after giving notice.