You had 40 years to prepare. But are you really ready?
Make no mistake: Retiring is hard work. You have to figure out where you will live, whether your nest egg is big enough and what you will do with all that free time.
About to call it quits? Before you hand in your notice, ponder these five questions.
1. Do you have enough saved?
Add up your sources of income. You will have social security. Maybe you will have a pension.
On top of that, there's the income from your savings. You might start retirement with a 4.5% annual portfolio withdrawal rate, meaning you would pull out $18,000 if you have $400,000 saved.
In subsequent years, you would step up your annual withdrawals with the inflation rate. If annual inflation runs at 3%, you would pull out $18,540 in year two, $19,096 in year three and so on. These sums would include any dividends and interest you receive. Keep in mind that part of this money would go toward taxes.
There's a good chance you won't have as much retirement income as you would like. To give yourself some financial breathing room, you might trade down to a smaller home, move to a less-expensive part of the country, take cheaper vacations and eat out less. If that doesn't make the numbers work, maybe you need to stick with your job a little longer or work part time in retirement.
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