How to Check if You Can Afford to Retire
You want to retire. After working for all of your adult life, you’re ready to move on to something else. But can you afford to retire? There are so many different things to factor in. How can you know if it’s really the right financial move to make?
Ways to Check if You Can Afford to Retire
There are so many different ways to plan for retirement. In fact, with all of the information available to consider, it’s tough to know which is the right approach. However, there are a few simple, key ways that you can check if you can afford to retire. While none of them will produce the single deciding factor about whether or not you’re ready for retirement, any of them can provide you with a starting point.
Have 10x Your Starting Salary in Savings
This offers a quick and easy way to give you a sense of whether or not you have enough money in the bank to retire. Multiple your starting salary by ten. If you have this much in the bank then you can probably afford to retire. If you’re planning young for retirement, then aim to have this amount in the bank by age 67. Source: Fidelity Investments via Acts Retirement-Life Communities.
Use an Online Retirement Calculator
The reality of planning for retirement requires factoring in more than just your salary and savings. In fact you might want to consider everything from the rate of return on your investment portfolio to the predicted inflation rate throughout your life expectancy. One way to incorporate several of these factors without too much hassle is to use an online retirement calculator. NerdWallet and SmartAsset are two of many places online where you can easily access retirement calculators.
5-Step Retirement Calculation
If you would prefer to do some of the calculating yourself, then check out the 5-Step Retirement Caclulation offered over at The Balance. Making these five suggested calculations should tell you whether or not you can afford to retire. (If you want to retire this year, the calculation to input for question #2 is one.) The calculation factors in your current and planned retirement contributions, your life expectancy, expected income available in retirement, and your current financial costs.
Ask Yourself Some Common Sense Questions
Running the numbers is a smart way to approach figuring out whether or not you can afford to retire. But it’s not the only way. You might also find it helpful just to ask yourself some common sense questions. For example:
- Do you currently have a lot of debt and/or trouble paying bills?
- What types of big expenses do you anticipate for the future? Do you have a means of paying those?
- If you stopped earning an income right now, would you be able to afford the life you’re currently living?
- What amount of money do you have in retirement savings? When can you access it without penalty? Can you afford to live off of it?
In other words, try to think realistically about your income and expenses in the years to come. That will give you a good internal sense of whether or not you can afford to retire.
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