Article featuring Greg Luken
Even if you enjoy your job, it’s normal to be stealthily eyeing the calendar, counting down the months to retirement. Perhaps you’ve determined that 2025 is it, the time you’ve been waiting your whole working life for: the year you retire.
Sure, 2025 can be your year to retire. But can it be your year to retire without soon going broke or putting your financial security at risk? Can 2025 be the year you retire comfortably without having to get a job again? Well, it could not be. Experts weighed in on eight signs you’re totally not ready to retire in 2025.
You’re Not On Top of Your Budget
The first sign you’re not ready to retire? You’re doing a rotten job at budgeting. Spending and tracking your spending will be acutely critical in retirement.
“If you don’t have a good handle on what your expenses and income are going to be like in retirement, you should be a bit concerned,” said Erika Kullberg, a personal finance expert, attorney and the founder of Erika.com. “Without a reasonable monthly budget that includes plans for things such as housing, healthcare, and leisure, it’s hard to know if you can survive for 20 or more years.”
You Have Poor Diversity in Risk or Income Streams
Having poor diversity in risk or income streams is another major sign you’re totally not ready to retire in 2025.
“If you feel that your retirement plan hinges on a single income stream such as Social Security or a single pension, you’re taking a big risk, particularly when the level of those sources is insufficient or uncertain,” Kullberg said.
You Don’t Have a Retirement Income-Specific Plan
You may have an effective and practical plan for how you spend your income. But this plan probably won’t work in retirement. You’re entering a whole new financial life, where you live on what you’ve made and not what you’re making.
“If you’ve planned on using the same strategy for the income phase that you used for the accumulation phase, you have a problem,” said Greg Luken, founder at Luken Investment Analytics. “The income phase is radically different from the accumulation phase of life. The same reason dollar cost averaging can work during the accumulation phase gets turned upside down and works against you during the income stage. That’s why it is so critical to have an income-specific plan.”
You Haven’t Spent Time Tax Planning for Your Retirement Years
There’s also a sign that, from a legal perspective, means you’re not ready to retire in 2025: You haven’t spent time tax planning for your retirement years.
“Retirement comes with complex tax implications. If you haven’t structured your retirement accounts, investments or income streams to minimize taxes, you might be ill-equipped to face retirement,” said Paul Koenigsberg of Koenigsberg & Associates. “Tax-efficient withdrawal strategies can significantly impact your retirement savings. Also, without proper tax planning, you could face higher taxes on Social Security benefits, RMDs or even penalties for early withdrawals.”
Your Cost of Living Is Too High
The way you get money will change when you retire and, depending on your retirement savings, so too will the amount. It’s not unlikely that you won’t be living on less money in retirement. Can you handle your cost of living if your income drops? Because your cost of living will not necessarily be dropping with it.
“Too many people assume that living expenses will drop substantially in retirement, but the reality is by the time they retire, children have already moved out so that’s not likely to be the case,” said Jeremy Bohne, founder at Paceline Wealth Management, LLC. “If anything, most living expenses are about the same, while travel tends to be heavier in early retirement. This is when people are most active, or when they want to travel to see their adult children.”
You Have Not Accounted for Rising Healthcare Costs
In addition to accounting for many expenses to remain high in retirement, you must also account for expenses that will become higher in retirement, like medical expenses that Medicare does not cover.
“Healthcare can be one of the largest expenses in retirement, and failing to plan for long-term care, Medicare premiums or unexpected medical expenses could put a strain on your finances,” Kullberg said.
You Still Have Big Bad Debt
Still shouldering high-interest debt, such as that associated with credit card usage? This is a sign you’re not yet ready to retire.
“Carrying debt can create serious financial pressure during retirement when income is typically lower,” said Rebecca Awram, mortgage advisor at Seniors Lending Centre. “Paying off or consolidating these debts before you retire can help you avoid stress and give you more financial freedom.”
You Don’t Have a Realistic Plan for How You Will Spend Your Days
The last sign that you are not ready to retire isn’t a financial one; it’s actually more of a personal logistic one. You’re not ready to retire if you don’t know how you will actually be happy in retirement on a social and intellectual level.
“Many people fall into the trap of thinking that the joy of retirement is the absence of work,” Bohne said. “But the reality is that a void of time and no idea how you’d like to spend it leaves most people with a lack of purpose. That’s not a path towards a satisfying retirement.
“Those who thrive in retirement are running towards something they will enjoy, which is often spending more time with family, and being more actively pursuing hobbies,” Bohne said. “That’s very different from running away from something.”
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