How to Know When You're Ready to Retire

Updated: May 9, 2020

One of the biggest questions of a person's life is when they are ready to retire. If you are like most American's this question has crossed you mind or, may even, be asking yourself that question right now. This is one of our most frequently asked questions so we decided to put together an article that can help you decide when you are ready to retire.

The first important thing that I believe we should discuss is life insurance.

1) Do You Have Life Insurance?

Death is something that, no matter the age, always comes too soon. This is inevitable. Nobody knows when and where their life will end. As a result of this inevitability, it is NEVER too soon to prepare for the worst. Many people fear the expense of life insurance, but it is worth the expense.

Many people consider life insurance to be a ridiculous sum of money while, in reality, it is much more affordable than common believed. There are different types of life insurance of which people should be aware. They are broken down into the different categories below.

Common Life Insurance Terminology

Premium: Minimum payment required to keep a life insurance policy active.

Death Benefit: The amount payable upon the death of a person whose life is insured.

Policy Term: Duration that a life insurance policy is active.

Level Premium: Non-fluctuating premium payments.

Cash Value: The amount to which a policy-owner is entitled if the policy is surrendered before maturity.

Term Life Insurance - (Temporary) - Cheapest Form - Recommended


Level Death Benefit and Level Premium During Policy Term

Annual Renewable Term

Death Benefit Remains Level and Premium Increases with New Attained Age

No Need Proof of Insurability When Renewing Coverage

Decreasing Term

Level Premium with Decreasing Death Benefit over Policy Term

Increasing Term

Level Premium with Increasing Death Benefit over Policy Term

Whole Life Insurance - (Permanent) - Until Death or Age 100 - Cash Value (Savings Element)

  • Characteristics

  • Level Premium for Life

  • Death Benefit is Guaranteed and Remains Level

  • Cash Value

  • Living Benefits that Can Be Borrowed Against

Types of Whole Life Insurance

Ordinary Life

Basic Policy

Level Premium Until Age 100 or Death

Level Death Benefit

Limited Payment

Premiums Paid Up Early Before Age 100.

Usually 20-Pay Life (20 Years to Pay Up)

Also, Life Paid-Up at 65.

Coverage Lasts Until Age 100 or Death

Single Premium

One Lump Sum Payment

Level Death Benefit

Interest-Sensitive Life Insurance - No Death Benefit Guaranteed - Investing - Avoid

Indexed Life

Interest-Sensitive Whole Life

Universal Life

Can Make Partial Surrender/Cash Withdrawal

Option A

Level Death Benefit

Option B

Increasing Death Benefit

Variable Life Insurance

Variable Universal Life Insurance

Both Variable Life Insurance Policies

Fixed Premium and Minimal Death Benefit

No Cash value and Actual Death Benefit is Guaranteed

Life insurance is a great idea if you have children who are younger than 25 years of age. During this time period of your children's life, they are just entering the workforce and may be in financial trouble if something were to happen to you. If you passed away, the death benefit of your policy would be very helpful to cover living expenses until they can start to build a tower of money for themselves. If your child depends on your money, a life insurance policy is a must.

The opposite is true. If you have a child who is 26 or older, put money in savings. Your child should be exposed to the workforce and is working to better handle finances. If you put money into savings, you should be able to put money away than what your policy would cover. AKA, your child should not DEPEND on the death benefit to survive.

The money involved in a life insurance policy is aleatory (very unequal). You pay very little in comparison to what your primary or contingent beneficiary, or what your estate, will receive if something happens to you. Life insurance policies are not a one-size-fits-all, but there is certainly a policy for everyone!

2) Do You Have A Fully-Funded Emergency Fund?

Having a fully-funded emergency fund is an important part of anyone's financial journey, regardless of age. An emergency fund should be able to cover 3-6 months of your food, water, shelter, and transportation. These funds should only be used to cover emergency expenses (job loss, flat tire, etc.). Keep these funds accessible!

3) Are You Debt Free?

If you are like 80% of American's, the answer to this question is "no." This is a big problem! How can you make the most of your retirement money if you have money going out to credit card companies, mortgage companies/banks, car companies, etc.? These money leeches have go to go if you are hoping for a financially healthy retirement!

If you are in in debt, and need help getting out, check out this article!

4) What Is Your Lifestyle Worth?

Many people retire without having a clue as to how much money they spend on their current way of life. This is a problem. If you do not know how much money you live off of to support your current lifestyle, how will you know how much money you need to save up for retirement and to know when it is finally time to retire?

Check out this tool to help you determine how much money you will need to retire and support the retirement lifestyle of your dreams.

5) Do You Have A Will?

Having a will is very important in planning your estate. It distributes your assets if something were to happen to you. No matter what age you are, we highly encourage you to have a will and update it regularly.

If you need assistance preparing your will, please contact a local or professional or contact us and we will connect you with a professional in your area.

6) Do You Have The Right Retirement Plan?

According to an article published by CNN Money, about 66% of Millennials have absolutely nothing saved for retirement! Two-thirds of people ages 21-32 are not preparing themselves for a successful and financially prosperous future!

As some of you may know, I coordinate a Financial Peace University class and, within this class, I have a married couple that emphasizes, "If we had only started sooner!" This is true with many American's today. As we approach our mid-60's we regret not putting money away at an early age. Yes, for people ages 21-32, retirement seems very far away, but the earlier you start, the more thankful you will be for your actions in the late-years.

Why do you believe that these numbers are so low? I firmly believe hat public school's are to blame. Public schools really stress the importance of content, but life skills, such as filing taxes and saving for retirement, are rarely taught. The end result is what you can see, poor financial decisions. A big problem is that people want to get started, but are not sure where. Here are just four types of retirement plans that you can invest in and prepare for the future. These are the most common.

Traditional IRA

  • Contributions made until age 59 1/2

  • Must pulls funds by age 71

  • Tax deferred - paid once money is removed

Roth IRA

  • No payment cap

  • Penalty if money is removed before 59 1/2 

  • Taxes are paid up-front and grow tax free

  • Annual contribution limit of $5,500


  • Plans vary between employers so these are just common characteristics

  • Average of 3.2% employer match

  • Fund Allocations

  • Catch-up contributions to employees 50+ of age

  • Contribution limit in 2018 has risen to $18,500


  • Tax sheltered annuity

  • For employees of public schools and certain tax-exempt organizations

  • Has similar characteristics of 401(k) 

How do we suggest that you prepare for a sound financial retirement? Invest on a Roth IRA AND a 401(k) if your employer offers that plan. Why? You should always invest 15% of your annual income into retirement. But how should the funds be divided among these two plans? Invest into your 401(k) only what your employer will match! If they only match 3%, only place 3% out of the 15% required. Why? Free money. A100% match! If you contribute more than that, you are losing money. Take the remaining 12% from our example and invest it into a Roth IRA.

Roth IRA's typically have a much higher percent return. If you do this, with the 15% you invest into the funds, and the 3% your employer matches, this is a total of 18%. This is better than the 15%. An extra 3% that YOU don't have to pay! This is the best way to invest in retirement to maximize profit. Please take advantage of these plans as soon as possible!

Now is the oldest you've ever been and the youngest you will ever be!

7) Have Multiple Streams of Income

This is, by far, the most effective way to bring more money into your household. The fact that most people do not follow this rule to building wealth is astonishing. Even if your main job is/was paying you exceptionally well, it is still important to have money coming from other places.

Having multiple sources of income not only helps you build wealth faster, it provides security and insurance in case you lose your job or provides you additional income during retirement.

At this point, you may not know exactly where to begin to create more passive income. Don't worry. There are many different ways to accomplish this and we are about to share the best ways to increase your passive income.

  • Invest in Real Estate.

  • Start, Build, or Grow Your Own Side-Business. For assistance, click here!

  • Affiliate Marketing 

  • Create/Sell Stuff Online

In our opinion, Real Estate is the best investment to become wealthy. It has made so many millionaires in America and gives people leverage as well as many tax advantages. You can do a quick flip to make quick cash or you can hold on to a rental property for long term monthly cash-flow. If you want to be wealthy, the most crucial way to earn a fortune is to become an entrepreneur. 

The best way to start a business is allowing it to grow on the side of your regular income. By doing this, one would not have to immediately get into debt and put themselves in a larger financial hole in order to make more money. Once you get to the point where your side business is making more money than your day job, you are ready to pursue your business full-time. 

If you have a website or a blog, you can pursue affiliate marketing in order to monetize it. Affiliate marketing is when you earn commission for marketing another company's products. The amount of money you would earn depends on how much website traffic you have and how often people buy the products for the ads on your site. These are just a very few out of the thousands of ways that you can begin to generate more sources of income.

8) Are You Mentally Prepared?

Mental preparation is just as important and financial preparation. It is important to be prepared to have a significantly large amount of time. Mental preparation for retirement can include:

  • Picking Up New Hobbies

  • Surrounding Yourself With Family

  • Communicate Your Plan With Family

  • Set Goals

  • Etc.

Overall, it is important to understand that retirement is a process and should be something that everyone should think about, and prepare for, as early as possible!

We would love to hear about how you are mentally preparing for retirement in our forum!

We hope that, with the information presented in this article, you feel more confident about when you can retire and how you best prepare yourself for a financially, and mentally, healthy retirement!

If you have any questions about retirement, post in the community forum, and/or, contact us!

For more articles regarding retirement, budgeting, and more, please subscribe and create an account on our blog!

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