|Pulling the trigger on retirement can be a costly mistake if your finances aren't in good shape.|
Several studies have tried to pinpoint how much money people should specifically have on hand before they retire. The truth is, though, that this amount is going to vary dramatically depending on what type of lifestyle you're looking to lead once you've left the workforce. "Your entire financial plan is going to stem from that vision," says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial (AMP). She suggests considering where you see yourself living, whether you plan to get another job during retirement and how you plan on spending your time. "Free time is very expensive," agrees Diana Palmer, a certified public accountant with Family Financial Planning. "If you like to travel, your budget needs to be set much higher." Will my debts be paid off?
Unpaid debts will contribute to your monthly expenses and play a huge part in how much money you will need to have on hand before you go ahead and leave the workforce. This is not to say your house needs to be paid off in full before you retire. "If you have a low interest rate [on your mortgage], you'll have to ask, 'Do I want to pay this off in full?'" Kinsey says. On the other hand, if the mortgage is more substantial, you may want to consider taking money out of your investment portfolio so you don't have to worry about it moving forward. The point is, whichever option you chose will have a significant impact on your cash flow. If you have other debts on the books, such as high credit card balances, you may want to look into what other factors may be behind the balances so you can get them paid off as much as possible before you abandon a steady paycheck.