Leaving the workforce may be the goal, but retirement without a strong financial plan could put years of savings — and long-term financial security — at risk, Investopedia reports.
The oulet’s analysis identified warning signs that workers may not be ready to retire, including excessive debt, inadequate planning, and uncertainty about how much income they will have once regular paychecks stop.
Struggling to cover current bills is one major red flag. Retirees may need about 75% of their preretirement income to maintain a comfortable lifestyle, with money potentially coming from Social Security, pensions, 401(k) plans, individual retirement accounts, and other savings.
Carrying significant debt is another concern. David Walters, a certified financial planner with Palisades Hudson Financial Group, told the outlet that reducing or eliminating credit card balances and auto loans before retirement can ease pressure on savings. Paying off a mortgage or downsizing may also make sense depending on a person’s circumstances.
Workers should also have a plan for major future expenses, including home
repairs and vehicle purchases, and know approximately how much they will receive from Social Security. Claiming Social Security at age 62 can result in monthly benefits 30% lower than waiting until full retirement age, according to the Social Security Administration.A lack of monthly and long-term financial plans are two additional warning signs. Prospective retirees should understand their expected expenses, taxes, and healthcare costs, along with how much they can withdraw from savings without exhausting their money.
Inflation also matters. Rising prices can erode purchasing power over a retirement that could span 30 years or longer, making an investment strategy designed to keep pace with inflation increasingly important.
Failing to periodically rebalance an investment portfolio can create additional risk as retirement approaches. A diversified portfolio can help retirees balance income generation, capital preservation, and exposure to market volatility.
The final two warning signs aren’t strictly financial. Workers who are anxious about leaving their careers or who still genuinely enjoy their jobs may want to reconsider their timing.
Ultimately, retirement readiness requires more than reaching a certain age. Understanding debt, expenses, income, investments, and life after work can help determine whether leaving the workforce is financially sustainable.RELATED CONTENT: These States May Help Retirees Keep Most Of Their Retirement Income