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The 5 Questions to Answer Before You Pull the Retirement Trigger

They'll help you see if you're emotionally and financially ready


(This article previously appeared on RealDealRetirement.com.)

When Ameriprise Financial asked 1,000 recent retirees as part of its 2015 Retirement Triggers study what led them to retire, more than half answered it was because they “decided it was time to enjoy life” or they just “no longer wanted to work.” Perfectly valid reasons.

But before you call it a career, be sure you’re emotionally and financially ready to retire. These five questions can help:

1. Have you done any lifestyle planning? By lifestyle planning I mean going beyond vague ideas of how you might spend your time in retirement — hanging out with friends, doing a little traveling, etc. — to thinking seriously about how to fill your hours once you no longer have the framework of a 9-to-5 job.

A Merrill Lynch study shows that retirees missed the social connections they formed on the job more than their paychecks.

Among the issues you should explore: Will you stay in your current digs or downsize? Relocate? What will you do to stay socially engaged?

A Merrill Lynch study shows that retirees missed the social connections they formed on the job more than their paychecks, while other research found that retirees who were satisfied with the number of friends they had were much more likely to have a happy retirement than those who felt more isolated.

For the most part, these are issues you can work out on your own, although you may also find it helpful to attend a seminar that explores such questions, such as the Paths to Creative Retirement workshops and the Creative Retirement Exploration Weekend offered by the Osher Lifelong Learning Institute at the University of North Carolina-Asheville.

2. Do you have a Social Security strategy? Some people have no choice but to file for Social Security as early as possible, age 62. But if you have a decent size nest egg you can draw on, waiting can be a smart move, as your starting benefit rises by 7 to 8 percent each year you delay between 62 and 70, when there’s no longer an advantage.

Married couples have even more opportunities for increasing the amount they’ll collect over their joint lifetime by engaging in various claiming strategies, such as the older spouse filing and suspending his or her benefit at Full Retirement Age so the younger spouse can collect spousal benefits while the older spouse’s benefit continues to grow.

For a dual-income couple, such strategies can often increase their potential joint lifetime benefit as much as several hundred thousand dollars.

So in the years leading up to retirement, check out Social Security’s Retirement Estimator to see what size benefit you’re likely to receive, and then check out a calculator like Financial Engines Social Security tool to explore ways you might boost the total amount you receive.

3. Is your portfolio in shape? Although we tend to become more risk averse as we age, many people nearing retirement neglect to adjust the mix of assets in their nest egg so it still jibes with their risk tolerance — or fail to make the adjustment incorrectly. The result can be entering retirement with a stock-heavy, growth-oriented portfolio that could be hit with a significant loss in the event of a severe market downturn.

To avoid that possibility, in the years leading up to retirement, assess your appetite for risk by going to a tool like Vanguard’s risk tolerance-investor questionnaire-asset allocation tool. After answering 11 questions, you’ll get a recommended stocks-bonds mix, plus you’ll be able to see how that recommended mix as well as others more conservative and more aggressive has performed in good and bad markets over the years.

For even more assurance that your nest egg is retirement-ready, give it this 15-minute portfolio check-up.

4. Have you gauged how long your nest egg might last? The last thing you want to do is find out shortly after retiring that your savings are running out much more quickly than you anticipated. Which is why it’s important to know before you retire how long your nest egg can reasonably support you given the withdrawals you’ll need to make.

Start by getting a handle of your retirement expenses by going to a good online budget worksheet. The one in Fidelity’s Retirement Income Planner tool has line items for some four dozen expenses, plus it allows you to specify five custom categories so you’re not likely to overlook anything.

Once you have a decent fix on your likely spending, plug that information, along with your savings balance and other details like how many years you expect to live in retirement, into a good retirement income calculator and you can get a good sense of how many years your nest egg is likely to last given your expected withdrawals. If it appears your savings are likely to run out early in retirement, you can see how alternative scenarios, such as cutting back on spending or postponing retirement a few years, might tilt the odds more in your favor.

5. Do you have a Plan B? Sometimes even our best-laid plans unravel for reasons beyond our control — a market meltdown, an unexpected illness, etc. Which is why it’s important to have a back-up plan to go to in the event things go wrong.

One element of such a plan is a list of expenses you can quickly pare to extend the longevity of your nest egg. Another would include ways of bringing in extra income should you need it, such as taking a part-time job (sites like RetiredBrains.com and RetirementJobs.com can help) or tapping your home equity via a downsizing or reverse mortgage.

A more radical, but nonetheless effective, strategy in many cases is to relocate to an area with lower living expenses, which will allow you to stretch your nest egg and other resources.

The key, though, is to ask these five questions and seriously consider these issue before you call it a career. Otherwise, you could find yourself in the uncomfortable position of scrambling in a panic if things start to go awry.

Walter Updegrave
By Walter Updegrave
Walter Updegrave is the editor of RealDealRetirement.com, a site that offers easy-to-understand-and-follow advice on retirement and investing. Walter previously wrote the Ask the Expert column for CNNMoney.com and MONEY Magazine and has published four books on personal finance. If you have a question on retirement or investing that you would like Walter to answer online, send it to Ask Real Deal Retirement. You can follow Walter on Twitter @RealDealRetire and reach him at [email protected].@realdealretire

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