A friend told me the other day, that when her work started to interfere with her play time, she knew it was time to retire. If you are starting to re-evaluate your life, and how you want to spend your time; you might be ready to retire.
Not sure if you are financially stable enough to retire? If you can check off most of the following items, chances are, you’re ready.
- Your home is paid for. Most people live on a reduced fixed income during retirement, so being mortgage free will help eliminate financial stress and provide you with a safety net. If you are lucky enough to maintain your income the money that was previously earmarked for home payments can now be used for other things like travel or social memberships. Furthermore, if things get tight you can rent out part of your home, downsize altogether or use a line of credit to access the equity you have built up over the years.
- You have a workplace pension plan. Less than 40% of Canadians have a workplace pension plan, so if you have been contributing to one over the years, you are one of the lucky ones. These plans supplement the government income programs and depending on the type of plan may guarantee you income for life.
- You are 65 years old. At this age you qualify for an unreduced Canada Pension Plan (CPP), Old Age Security (OAS) and possibly the Guaranteed Income Supplement (GIS). These plans can provide you with an income of approximately $21,000 per year. Lower income earners may receive even more. That kind of money can go a long way, especially if you are not used to a lavish lifestyle.
- Your children are financially independent. As some point, you must stop worrying about your kids and hopefully someday they will start worrying about you. In a perfect world neither parent nor child should have to continually provide financial support, but life is not perfect. If you are still financing your child’s lifestyle, you might not want to stop working just yet.
- All your friends are retired. Are you the only one in your social circle still working? Time to ask yourself why; and be honest, is it because you need the paycheck or is there another emotional reason? Whether you decide to call it quits or keep working you need to do it for the right reasons.
- Your job is affecting your health. Stress is one of the major contributors to all health issues. Less than half of retirees left work when they had planned. The balance retired earlier (48%) or later (6%) because of circumstances beyond their control, an Angus Reid poll found. None of us can control how we age, and changing your plans to ensure a long, healthy retirement may be one of the best things you can do for yourself.
- You have saved enough money. Many people believe they need more than $1 million to retire which is simply not true, especially if you have a workplace pension. Some of the formulas found on the internet are based on very simple math, for example, they say if you need $40,000/year income, using a standard 4% withdrawal rate the calculation 40,000/4% does equal a $1,000,000. However, if you subtract what you would receive from CPP and OAS the amount required is quite different 40,000-21000=19000 – 19000/4% = $475,000. These types of formulas also do not consider lifestyle expenses, equity in your home, working part-time or receiving an inheritance just to name a few things. Everyone’s magic number will be different depending on their lifestyle, age, health, and marital status. Hiring a Certified Financial Planner is the best way to help you determine whether you have saved enough money to stop working.
If you checked off several of the above points and want to stress test your retirement plan; give me a call. Retirement income planning is my specialty, and something I love to do.
Have a great weekend,
Tracey
Source: Original article posted by Money Sense Magazine by Stefania Di Verdi, 07-17-15, online only
MT11-08-2015, -20192=03-27 Statistics Canada, MT 2020-05-14, 2022-11-11
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