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How do you tell when it's the right time to retire?


How will I know when it's the right tie to retire? Is there a barometer that experts rely on to know when it's the right time to go?--B.K.

I don't know of any generally recognized gauge or barometer for calling it a career, but I can tell you that the decision to retire definitely isn't just about reaching a certain age. I recently took personal finance guru Suze Orman to task for suggesting as much when she recently asserted in no uncertain terms that "70 is the new retirement age -- not a month or year before."

She's right that many people may need to stay on the job longer these days to accumulate a large enough nest egg to support them in retirement. But to say that 70 -- or any single age, for that matter -- is the right age to retire? That's far too simplistic. The decision to retire involves too many subjective factors that can vary significantly from person to person to be boiled down a single number.

So how can you tell when it's the right time for you, given your specific situation, to make the transition from the work-a-day world to post-career life?

One place to start is by assessing whether you're financially capable of leaving the workforce. One major question: Do you have enough saved so that draws from your nest egg plus income from guaranteed income sources like Social Security, pensions and annuities will allow you to maintain an acceptable standard of living throughout a retirement that could last 30 or more years?

It's difficult to answer that question with absolute certainty because of a variety of uncertainties, including how long you might live, the rate of return your investments will earn, what your expenses will be during your post-career life. And, indeed, research shows that many people don't have an accurate sense of whether they're on track to a secure retirement. Still, without too much effort you can come up with a pretty decent estimate of whether you've got the financial resources necessary to pull the trigger.

Start by doing a retirement budget so you'll have a realistic idea of the amount of income you'll need to cover your expenses once the paychecks stop. You can do a budget the old-school way with paper and pencil, but I think you'll find it a lot easier to use an online tool like BlackRock's Retirement Expense Worksheet, which lists more than four dozen different expenses, including both essential living costs (housing costs, transportation, food, health care, taxes, etc.) and discretionary expenditures (travel and entertainment, charitable donations, dining out, etc.). You won't be able to predict your costs down to the penny, but you can update and refine your estimate annually after retiring.

Once you have a decent handle on expenses, you can plug that figure, along with such information as your age, current retirement savings balance, the amount you'll collect from Social Security any other guaranteed income sources, into a good retirement income calculator that uses Monte Carlo analysis to estimate the probability that your resources will be able to generate the income you'll need for the rest of your life.

Again, we're dealing with approximations here; no tool can predict the future. But if after going through this sort of analysis you find that your chances of being able to generate the income you'll need are uncomfortably low -- say, less than 80% or so -- then you may want to postpone retirement until they improve or find other ways of tilting the odds in your favor, such as downsizing, taking out a reverse mortgage or paring your discretionary expenses.

As you're going through this financial review, you'll also want to take a look at your retirement investments. The single most important thing you want to do is ensure you're properly balancing risk and reward. During your career you have plenty of time to rebound from severe market setbacks, so you can afford to tilt your portfolio mix heavily toward stocks to generate higher long-term returns. In retirement, however, the combination of big losses plus withdrawals from your portfolio can increase the risk you'll outlive your nest egg.

So as you near and enter retirement, you'll likely want to scale back your stock holdings to prevent a market downturn from decimating your nest egg.

Just as there's no single retirement age that's right for everyone, neither is there a stocks-bonds mix that suits retirees and near-retirees. But you can get a decent idea of how to divvy up your portfolio between stocks, bonds and cash by completing this risk tolerance-asset allocation questionnaire.

But deciding the appropriate time to retire isn't just a numbers game. To make a smooth transition into retirement, you also want to consider how you actually want to live and whether you're socially and emotionally prepared to leave the work-a-day world. Do you have activities that will keep you occupied -- and better yet, make your time in retirement fulfilling and meaningful -- now that you won't have the structure of a job to plan your days? Do you have a solid network of friends and family to help you stay socially connected? Will you spend most of your time close to home or do you plan to travel? Do you expect to seek part-time or occasional work for pay or volunteer?

These are the sorts of issues I put under the general heading of lifestyle planning, and it's better that you look into them before you leave your job than after. That's especially true if you're thinking of working in retirement, as finding a job you'll enjoy and that pays an acceptable wage may be more challenging than you think.

It would be nice if after going through the process I've described, you could be sure to arrive at firm yea or nay on retiring. But things aren't always so clear. For example, you may find that you've got all the resources you need to call it a career, but you enjoy working too much to give it up now, which is fine. Conversely, you could come up short on financial readiness but because you feel you're simply unable to go on with your job you figure you're better off retiring anyway, even if that means scaling back your retirement vision.

And sometimes you may not have much of a choice. Almost half of retirees left their jobs earlier than they planned, according to the Employee Benefit Research Institute's 2017 Retirement Confidence Survey, often due to health problems, being laid off by their employer or because they had to take care of a spouse or other family member. Faced with such a situation, one person could decide to try to find work, any work, and postpone retirement. Another person may decide to retire and fashion the best post-career life as possible, given the circumstances. There's no one correct response.

Ultimately, deciding when to retire is really about deciding how you want to spend whatever time you have left in this life. So while I recommend that you weigh the issues I've raised above, recognize that neither I nor anyone else can know what the right decision is for you. This is a call you'll have to make as best you can give the circumstances you face.

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