As you head towards retirement, you’ve likely been saving diligently in your 401(k) and IRAs, and you may start to wonder when you can actually retire.
At REAP Financial, we conduct many analyses with our advisers to show people when they can comfortably retire. In many cases, we find people could have retired sooner than they thought!
In this article, we’ll go over five signs that you may not be quite ready to retire. Read all the way to the end to learn about the most overlooked point of building towards true success in retirement!
5 Signs That You May Not Be Ready to Retire:
1. You Don’t Have a Plan for Your Time
As you prepare for retirement, consider what you’ll do in retirement, not just when you’ll retire. We recommend thinking about retiring into something, rather than retiring from something.
At REAP Financial, we have the unique privilege of retiring many successful families. We see many people retire and dive into hobbies and activities to the point where their days are full. For others, it takes a bit longer to adjust psychologically and relationally.
It can be difficult to transition from your work routine to a retirement routine. For this reason, preparing psychologically is important. Consider discussing what retirement may look like for you and your spouse.
Talk about what you want to do to stay active and sharp! If you haven’t had any of those conversations, it could be a sign you’re not ready for retirement yet.
2. You Haven’t Considered Tax Implications or Prepared for Healthcare Costs
For most people, taxes and healthcare expenses in retirement could be their largest costs. Many people have their mortgages and debts paid off by retirement. Even so, many of the retirees we work with are surprised to learn they may be in the same tax bracket or a higher one during retirement than during their working years. This is because they live primarily on IRAs and 401(k)s, which are taxed as income.
Over the years, this can be exacerbated by Social Security income and required minimum distributions, which are taxable. You may even face declining deductions without the ability to claim dependents or deduct mortgage interest. In summary, there are many reasons your tax bracket could rise in retirement, so consider them before retiring.
Since healthcare costs often increase in retirement, healthcare is another important area to plan for. If you’re a long-time follower of REAP Financial, you know that healthcare expenses and Medicare premiums are determined by the income shown on your tax returns.
In addition to Medicare costs throughout retirement, in late life many people may have to pay for long-term care or home healthcare. In Texas, where we’re located, long-term care facilities can easily cost more than $100,000 per year for standard care. These costs can drain a portfolio quickly, especially if you’re pulling money from IRAs or 401(k)s where those withdrawals may impact your tax bracket.
This is particularly important if you’re a widow or widower since you’ll likely pay more in taxes than a married couple typically would. As you can see, these effects can quickly pile on top of one another, so it’s important to think through all the implications of healthcare and taxes in retirement.
3. You’re Still Financially Supporting Family
Many of you may have kids whom you’re helping through college or as they get set up in their adult lives. You could be covering insurance costs, cell phone bills, or more. It is a blessing to be able to support a family like this, but it can also limit your financial security in retirement.
As you approach retirement, consider how those extra expenses may impact you long-term. Heading into retirement, consider reducing your budget as much as possible. If you’re still helping kids financially, it may be a reason to keep working until they are fully independent.
4. Your Portfolio is Still Very High-Risk
In your accumulation years, taking risks can pay off if you have a long-term objective. When you retire, consider knowing the number you need to retire and feel confident that you can sustain yourself in retirement.
At this point, risk becomes more like a tool to use at your discretion. You may want to reduce some of your risk since it can be costly. However, we also know that with inflation, we may need to take some risk.
Fortunately, for retirees now, you can get decent returns on cash, such as CDs and money markets. As you look to retirement, consider your risk profile and design your portfolio to give yourself some stability.
While you’re building your portfolio, the normal swings of the market may not bother you much. But when you’re living on your portfolio and taking money out in down markets, that can really hurt.
For this reason, consider having some accounts that are going up or holding steady when markets decline. Stability is key. You’ll likely still have some money that will ebb and flow with the market, so you can take advantage of the upside of risk. In short, consider diversifying to help cover your living expenses even in a down market.
5. You Have No Budget
Before retirement, it is normal not to pay too much attention to the budget. With a consistent income during working years, many people don’t strictly follow a budget.
When you retire, consider having a strong budget and knowing what you’re spending. The budget helps you analyze whether your portfolio may last longer than you.
We do this analysis with our fiduciary advisers every day at REAP Financial, but the critical input of the budget comes from you.
With a strong hold on your budget, you can get clarity and confidence you can maintain your lifestyle headed into retirement.
Ready to Take Control of Your Retirement?
At REAP Financial, our fiduciary advisers in Austin, TX, specialize in retirement planning, tax strategies, and comprehensive financial advising.
Schedule a consultation today to learn how we can help you navigate retirement with confidence.
Contact REAP Financial
Phone: (512) 249-7300
Email: retire@reapfinancial.com
Office Address: 9414 Anderson Mill Rd #100, Austin, TX 78729
Chris Heerlein, a Texas native, is the CEO of REAP Financial and founder of REAP Private Client Group (RPCG), specializing in wealth creation, preservation, and growth for affluent individuals, business owners, and executives. RPCG provides expert financial and investment advice, advanced tax strategies, business succession planning, and unparalleled client service. Chris is a trusted financial advisor, author of Divorce With Dignity (2019) and Money Won’t Buy Happiness But Time to Find It (2017), and a columnist for Kiplinger Personal Finance Magazine.
He has been featured in Fortune, Money Magazine, Bloomberg Businessweek, and U.S. News & World Report. Chris also hosts Wealth Radio on NewsRadio KLBJ and is a sought-after speaker. Based in Austin, Texas, he lives with his wife, Hannah, and their three children and actively supports charitable causes.
