How Do You Know if it’s Time to Retire?

time to retire

Editor’s note: Obviously if you’re my age (late 30s) this question may not be the first thing on your mind each day – although, as someone who is interested in financial independence and early retirement, I do personally find it helpful to begin thinking about these life-after-work concepts.  

But for both my father and my father-in-law, this is a really pressing issue that’s front and center in their lives. They are both recently over 65 and faced with the decision to leave their careers and start a new chapter. I have no doubt that it’s a challenging time for them, with financial, family and lifestyle choices involved. So let’s dig in to see how they (and you, or your parents) can answer this question: “Is it time to retire?”

With more and more Americans working beyond age 65, whether from financial necessity or simply because they love their jobs, the idea of a “normal” retirement age is changing. According to a May 2014 Gallup poll, the average age at which American adults expect to retire is now 66 – up from 60 in 1995.

So how do you know if it’s time to retire? Sometimes you don’t get a choice, of course – you may be laid off during a bad economy and not find a new job, or you may have health problems that push you out of the workforce. Or maybe your company offers you early retirement incentives that are just too good to pass up. For many people, though, the decision is not an easy one. If you’re wondering whether now is a good time to retire, examining several issues can help clarify your situation.

Can you afford to stop working?

You may have paid off your mortgage and other debts, and accumulated a reasonable amount of retirement savings, but how do you know you’ll have enough to maintain your desired lifestyle during retirement? The shift from traditional pensions (defined benefit plans) to 401(k)-style retirement plans (defined contribution plans) has introduced greater uncertainty into the equation.

There are many unknowns, of course – you don’t know how long you’ll live, how well your investments will perform or to what degree inflation will diminish your spending power – but retirement calculators (such as these from Regions Bank) can eliminate some of the guesswork. To see how long your savings will last, you can enter variables such as your cumulative savings, monthly spending, monthly income (including from pensions and Social Security), and additional factors such as the expected rate of return on your investments, the rate of inflation and your marginal tax rate. The result will help you decide whether you’re in a position to retire comfortably now or whether you’ll be better off working a few more years.

Let’s say, for example, that you have $500,000 in cumulative savings and you expect to bring in $1,600 per month from Social Security and $400 per month from other sources. If your expenses total $4,500 per month, your savings will fund your retirement for 15 years and seven months (assuming a 5 percent rate of return on investments, 2 percent inflation and a marginal tax rate of 25 percent).

When making your financial calculations, be realistic about your expenses. You may have decided to downsize to a smaller home to reduce housing costs, for example, but if you want to travel a lot you may end up spending more than you expect on food and lodging. If you’re under 65 and not yet eligible for Medicare, you’ll also need to factor in health insurance costs – and don’t forget to consider potential long-term care expenses as well.

Too many people stop working without first calculating whether they can actually afford to retire. If you start to run out of money, you’ll be forced to drastically reduce your expenses or go back to work, neither of which makes for a stress-free retirement. But if your financial house is in order, it’s time to consider whether you’re ready for retirement in other ways.

Do you have a life outside work?

Retirement is a significant lifestyle transition that requires mental preparation. Those who have spent decades focusing almost exclusively on their work often find the move to retirement difficult, both because they have no other interests to fill their days and because their identity is tied so closely to their job. Following are a few key issues you will need to consider:

  • Consider your extra time. Before you stop working, you’ll need to think about what you will do with the extra time. Do you expect to travel, devote time to hobbies, volunteer or even work part time in a field you love? Relaxing all day may sound appealing at first, but most people soon get bored if they have no direction or meaning in their daily lives. You’ll need to find something to replace the structure, mental stimulation and fulfillment offered by work.
  • Consider your identity. If your identity is based primarily on your job, you’ll need to develop a new self-concept as well. Likewise, if your social interaction is mainly with colleagues, you’ll need to create a new network of friends. It’s best to start working on these things before you actually retire.
  • Consider your family. Also think about how your family will be affected. If you are married, is your spouse ready to retire or already retired and waiting for you to join him or her? If so, how will suddenly being together all day every day affect your relationship? Or will you be spending your days alone while your spouse continues to work? If so, will you feel isolated?

If you’re thinking about retirement but not sure you’re ready mentally, you could try a more gradual shift by moving to part-time work or “practicing” some elements of the lifestyle you’re planning to transition to. If you think you want to buy a motor home and hit the road when you retire, for example, rent one for a few weeks and take it on vacation to see if you really enjoy the experience. You can also practice living on your retirement budget to see if it’s realistic.

However and whenever you decide to make the transition, remember that retirement is not only an end but a beginning – it’s an opportunity to pursue your dreams. If you engage in some careful advance planning, you’re more likely to feel financially secure and satisfied with your new retirement lifestyle.

This post was sponsored by Regions Bank.

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Last Edited: September 25, 2014 @ 8:50 amThe content of is for general information purposes only and does not constitute professional advice. Visitors to should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.


  1. You can try to live off of a retirement sum before you actually retire to see if you can even do it. You don’t have to wait until you retire. They always say 4% so we try to figure that out and see what we could do. If you are an extreme saver and budget all the time it may not be a big deal because you have been living “retired” for a long time. I’d always try to save more than less. Having more money is a great “burden” to deal with instead of dealing with regret of not saving enough.

  2. The right time to retire should be based on your finances and not on your age. I agree with all your points here, but it’s also important to have enough money saved for unforeseen events such as sickness and long-term care.

  3. Heck… will anyone of the next generation be able to afford to retire? Or maybe people won’t want to! Working has many benefits in keeping people active which can actually help to maintain health and provide many social benefits. I guess have the choice would be a good thing though!

  4. My parents are 63 and show no signs of slowing down. While they have always been high earners they also had five children, and didn’t start till 32, so they’re just now becoming empty nesters and learning to think about themselves and their needs.

    • I think I sort of hit upon this is my comment below… is this because they don’t want to slow down and retire? I’m almost now thinking that retirement these days can be seen as something not to aspire to?

  5. Knowing what your projected expenses are going to be and adding a margin of safety for unforeseen consequences is important. My plan is to avoid the disaster of trying to sell investments by building a passive income stream that exceeds the needs of me and my family. Ultimately, that freedom is what will allow us to go and do what we want in life.

  6. Great article! I never plan to retire, but I want to be able to only do the work I love. Right now, that’s what I’m doing, but I plan to do more and be able to set my own schedule one day. I believe that if you love your work, you’ll never actually work a day in your life, but…I do set back a lot of money for retirement as a cushion and money to fall back on if I do eventually decide to stop work entirely and say…travel the world with my family. Just a thought.

  7. I’m going to follow the 4% rule so I’ll know it is time to retire when I have 25x my annual expenses invested.

  8. I think that calculation of expenses has to be the most important part for me. I understand that income is a key component, but the equation is certainly easier when your expenses are nice and low.

  9. I’m 24 and focused on early retirement. Never too early.