|Are you ready to retire? Many Americans aren’t, and it usually has something to do with money. Here are three signs that you may need to get your finances in shape to get through your golden years:
1. You’re still repaying debt.
Some debt is better than other debt, but if you’re paying it off as you approach retirement, you may need to stop and think.
The more debt you take into retirement with you, the more of your retirement income you will have to use to pay it off. So, when you’re trying to decide when to retire, incorporate how long it will take to pay off your debt.
2. You’re totally dependent on Social Security.
Some Americans think Social Security will cover all their retirement income needs. That’s not usually the case.
According to the Social Security Administration, if you have average earnings, Social Security will replace only about 40% of your preretirement income. That percentage is less if you’re in lower income brackets and more if you’re in higher income brackets.
3. You’ve borrowed from your retirement plans.
It can be tempting to dip into retirement accounts when you need a loan. Certainly, paying interest to yourself is better than paying interest to a bank. But borrowing money from your retirement plan can hurt your long-term financial outlook, because you’ll need to earn an even higher return to catch up. The situation is even worse if you took withdrawals before you reached age 59 ½ and thus incurred penalties and taxes.
Want an easy way to find out if you’re ready to retire? Divide your desired retirement income by 4%. For example, if you think you’ll need $50,000 a year in retirement, divide $50,000 by 4%, or 0.04. You’ll get $1.25 million. That’s how much you’ll need to have to be ready to retire.