How to know when you’re ready to retire

Let's talk about one of the most coveted achievements in life: retirement. Not the "I'm rich enough to stop working" kind, but the "I've built a life so damn good, I can't wait to live it full-time" variety. At Mana, we believe retirement isn't just about reaching a magic number—it's about crafting a life you can't wait to live fully. 

The Retirement Paradox

People spend decades chasing their "number" - that magic pile of cash that supposedly unlocks the retirement gates. But guess what? Many hit their number and keep grinding. Why? Because they've optimized for financial freedom, but they’ve neglected life optimization.

We see this all the time. Often, it's not about the money— it's about purpose. People spend their professional lives building careers, raising families, and nurturing relationships. The idea of stepping away from these roles can be daunting.

The Real Questions

Instead of "What's your number?" Start asking:

1. If your job vanished tomorrow, what would you actually miss?

2. Without your job title, who are you?

3. What's your "always wanted to, never had time" list?

These aren't just feel-good questions. They're the foundation of a retirement worth having.

The 4% Rule is Dead (Kind of)

While we're focusing on the bigger picture, let's not ignore the numbers. The often-cited 4% rule suggests that if you withdraw 4% of your retirement savings in your first year of retirement and adjust for inflation each year after, your nest egg should last 30 years. Your personal withdrawal rate might differ based on:

- Your longevity expectations (women typically live longer than men)

- Your desired lifestyle (those art classes in Tuscany won't pay for themselves)

- The economic environment (inflation is more than just a buzzword)

- Your risk tolerance (peace of mind matters)

- Your investment strategy (balanced and aligned with your goals)

At Mana, we help you navigate these factors to create a sustainable financial plan.

Calculating Your Number: A Starting Point

If 4% isn’t a great rule to follow, how should you actually calculate your retirement needs? Of course, there’s no one perfect answer, but here's a simple and more personalized way to estimate your retirement needs that we like:

1. Estimate your annual expenses for your ideal retirement lifestyle.

2. Subtract any guaranteed income (Social Security, pensions).

3. Multiply the remaining amount by 25 (assuming a 4% withdrawal rate).

Example: You want $200,000 per year. Social Security will give you $45,000. Your starting point number is $3,875,000. But remember, life has a way of throwing curveballs, which is why we call this a “starting point”. It’s important to consider what factors might cause this number to change. At Mana, we stress-test your retirement plan against:

- Market downturns (because stocks don't always go up)

- Higher-than-expected inflation (remember when a movie ticket cost a nickel?)

- Unexpected health care costs (including long-term care, which can run north of $100,000 a year)

- Longevity risk (living longer than expected - a good problem to have, but still a problem)

Emotional Readiness: The Heart of Retirement Planning

Money fuels retirement, but purpose drives it. Just because you are monetarily prepared, doesn’t mean that you are actually ready to stop working. This huge milestone in life brings plenty of joy and relaxation, but can also bring stress and unhappiness if not planned for holistically. Before you transition to this new phase, consider:

1. How would your sense of purpose change if you didn't need to work?

2. If you couldn't introduce yourself by your job title, how would you describe who you are?

3. If you could retire tomorrow with financial security, what's the first thing you'd do, and what's the one thing you'd miss most about work?

Envisioning Your Retirement Lifestyle

Visualization can be a powerful tool for self exploration and understanding. We encourage our readers to practice this for themselves: Take a moment. Close your eyes. Imagine your ideal retirement. Now ask yourself…

- If time and money were no object, what three activities would you prioritize?

- What skill or hobby have you always wanted to pursue?

- How will you balance relaxation and productivity?

- How will you stay socially connected?

- What part of your working life would you like to maintain or replicate?

Remember, retirement is your opportunity to redefine your life on your own terms. What should that life look like?

The Couple's Retirement Conundrum

If you're in a relationship, retirement planning becomes a team sport. We've seen couples struggle when their visions for retirement don't align. Open, honest communication is key. 

Here are some questions to tackle together:

- How do we envision spending time together versus independently?

- What are our individual and shared goals for retirement?

- What new traditions or routines should we establish?

- How will we divide household responsibilities?

- What fears or concerns do we each have, and how can we support each other?

Remember, open communication prevents conflicts and ensures a smoother transition. And if you need a referee, that's what we're here for at Mana.

The Evolution of Retirement: A Three-Act Play

At Mana, we've witnessed our clients navigate the dynamic journey of aging. Retirement isn't a static phase; it's more like a three-act play:

Act I: The Reinvention (60s to early 70s)

The curtain rises on high activity levels and spending. You're traveling extensively, picking up new hobbies, maybe spoiling some grandkids. Financially, it's crucial to stay mindful of spending, but this is also prime time for earning passive income.

Act II: The Legacy Building Years (Mid-70s to early 80s)

The pace slows a bit. You're traveling less frequently but for longer durations. There's a greater focus on local activities and community involvement. It's time to reassess your budget and investment strategy to align with your evolving needs.

Act III: The Life Review Years (Mid-80s and beyond)

The final act is marked by reduced mobility and energy levels. The focus shifts to home-based activities, family connections, and legacy planning. It's time to prepare for potential healthcare and long-term care costs, and to simplify your financial affairs for easier management.

The Mana Game Plan: 5 Steps to Retirement Readiness

If you’re still with us and you feel ready to retire, we’ll leave you with five practical steps to take:

1. Conduct a Comprehensive Financial Review

Take a holistic view of your finances. Investments, savings, liabilities, insurance coverage - leave no stone unturned.

2. Maximize Your Savings

It's crunch time. Max out those retirement accounts, open a Health Savings Account (HSA) for tax-advantaged healthcare savings, and pay down high-interest debt like it's going out of style.

3. Develop a Social Security Strategy

Understand your benefit options and optimal claiming age. Coordinate with your spouse for maximum advantage. Remember, patience can pay off big time here.

4. Create a Retirement Transition Plan

Decide if you want to retire cold turkey or ease into it. Explore part-time work, consulting, or board positions. Plan activities that excite you for those initial months of freedom.

5. Assemble Your Retirement Dream Team

Your dream team should include:

- A CFP® Professional (that's us at Mana) to co-create a living, breathing financial life plan and investment strategy

- A CPA to work with your financial advisor to optimize your withdrawal strategy

- An estate planning attorney to ensure your legacy wishes are properly documented

The Heart of the Matter

Here's the truth: The happiest retirees often aren't the richest. They're the ones who've found a way to turn their interests into a second act. They see retirement not as an ending, but as a beginning.

Money is a tool, not a goal. It's the paintbrush, not the masterpiece. Your job is to figure out what masterpiece you want to create.

As you plan your retirement with us at Mana, think beyond the bank balance. Think about the life balance. Because a great retirement isn't about having enough to live on. It's about having enough to live for.

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Stephanie Bucko and Cristina Livadary are fee-only financial planners based in Los Angeles, California. Stephanie is the Chief Investment Officer and Cristina is the Chief Executive Officer at Mana Financial Life Design (FLD). Mana FLD provides comprehensive financial planning and investment management services to help clients grow and protect their wealth throughout life’s journey. Mana FLD specializes in advising ambitious professionals who seek financial knowledge and want to implement creative budgeting, savings, proactive planning and powerful investment strategies. As fee-only fiduciaries and independent financial advisors, Stephanie and Cristina never receive commission of any kind. Stephanie and Cristina are legally bound by their certifications to provide unbiased and trustworthy financial advice.