Some Important Questions to Answer Before Asking - Can I Retire?
1. What are your expenses? No, your real expenses that you have tracked carefully over a period of at least two years, not some rough estimate that you just pulled out of thin air. If you don't know where your spending flow goes now, you've got no business turning off the income flow.
2. Are you sure those are your expected expenses in retirement? How will you pay for health care? And how much will you pay? Have you gotten any quotes? If you're accustomed to group health insurance through your employer, prepare to be shocked. What is your plan for long term care? "I'll just shoot myself" is not a plan.
3. No, really, did you account for giving money to your children or grandchildren for college or a home or something like that? Or supporting your elderly parents or your "boomerang" kids? How about repainting the house, replacing the furnace or roof, buying a new car? If you live long enough, you'll likely do all of these things.
4. Do you plan on any major lifestyle changes? For instance, will you buy a vacation condo on Maui or take up Formula 1 racing? How will this affect your spending?
5. What are your sources of income in retirement? No, the real, honest-to-God actual sources of guaranteed money (or as close as it gets), not some vague idea that you'll pick up a little part time income on the side.
6. Do you know what your pension really will be or are you just guessing? Have you taken into account any discount for retiring before some specified age? Will you have a survivor provision, and how much will that reduce your pension? Will you get a COLA?
7. Have you gone to the Social Security Administration website to calculate how much you will get from social security? If you or your spouse ever had a non-social security job, will you be subject to the GPO or WEP?
8. Have you included taxes in your retirement income calculation? Be sure you understand how your state of residence and the IRS will 'reach out and touch you' once you give up your paycheck for an IRA withdrawal, SS, pension or other source of retirement income. If you use FIRECalc, you need to gross up the spending number for taxes.
9. What is your nest egg? And by nest egg, we mean real measurable dollars in some account that you can value on a daily basis and liquidate bit by bit as you need money, not raw land of speculative value, not the current home equity for a house that you're living in with no plans to move from in the near future, not your collection of Star Wars action figures, and not some inheritance that you may or may not receive in the future.
10. Is there some reason to believe that you will not live to be at least 85?
11. Once you know the answers to all these questions, did you run your numbers through FIRECalc? What does it say?
12. If the unexpected should happen and someone dies prematurely, how much income will the survivor have, and will it be enough to continue with the same lifestyle? Don't forget the impact of the resultant change in tax status (i.e. - married filing jointly to single)
Living an analog life in the Digital Age.