NEW YORK (
) -- Every now and then you probably ask yourself, "When should I retire?"
Is it simply a matter of finances? Or do you retire when you've "had enough" and are simple unwilling to take it anymore? Of course, there is no one answer for everyone. But you can ask yourself the following four questions and easily come to a better-informed conclusion:
1. How much does it cost you to live on average each month?
Before you quit your job, find out if you have the money to start living the life of Riley or not. And to
determine if you have enough money to retire
, you must first know what it costs you to live.
If you track your spending or use my "
5 Minute a Month"
method to monitor your cost of living, you already have a good sense of it. Just take your current average spending and use an Internet calculator to factor in inflation. Since the average inflation is about 3.2%, that's the number I suggest you use.
If you don't know what it costs you to live, there is no way you can determine if you have enough money to retire. So if this is an important question for you, start tracking now. Do not go to step two unless you know what it costs you to live, please.
2. How much passive retirement income (pension and Social Security benefits) will you have?
Once you know how much money you need to retire, the next step is to see how much money you actually will have. This part of the exercise is pretty straight-forward. Just get the figures from your human resources department and the Social Security Administration.
3. Will you be able to create enough income from your portfolio to make up the difference?
When you retire, you probably will need to dip into your savings. Don't feel bad about that. That's why you worked so hard and that's what it's there for. The question is,
how much can you withdraw
For argument sake, let's say you have $500,000 saved and plan to draw 4% from that account each month. That's $20,000 a year you can count on as portfolio income.