How Prepared are You for Retirement?

6/27/2012, 1:28 p.m.

A longing to spend the day on the golf course or the urge to pack up all your belongings and move into an RV are telltale signs that you're emotionally ready for retirement. Unfortunately, a person's desire to retire isn't always aligned with his or her retirement plan; unless you've got the financial backing you need to quit the rat race for good, an early retirement might actually end up being one of the worst fiscal decisions of your life.

While retirement is a partially subjective issue, since you're the only one who can determine for certain if the timing is right to quit your job and cash in your 401(k), there are certain financial indications that indicate if retirement is the best course of action for you and your life.

Are Your Finances Guaranteed?

One of the best ways to tackle retirement is to adjust yourself to a steady monthly income that will come in no matter what might be going on around you. A fully-vested pension or 401(k) plan or a set annuity are good indications that you can retire without fear of losing all your money, since you will know what to expect each month. On the other hand, investments that are dependent on the market continuing an upward climb before you cash them in are less stable, and give you fewer options is something does take a turn for the worse.

An important note here is that counting on Social Security to fill in the gaps isn't always an ideal plan, either. While Social Security can be a great way to channel some extra funds into investments, depending on it to pay the bills means that you might need a few more working years before you let go.

Can You Access Your Money Anytime?

Many types of investments limit your accessibility to your funds. Stocks and bonds typically require a certain amount of time to mature properly, and there might be a large fee associated with taking the money early. If the bulk of your retirement money is tied up in these kinds of investments, it might be wiser to wait until they have reached their peak before you access them.

This is especially true in a declining market like the one the United States is experiencing right now. Not waiting out a recession can end up costing you thousands to millions of dollars - certainly not enough to offset taking retirement a few years early.

Before You Retire

No matter how prepared you think you are, it's always best to confer with your financial advisor before making your retirement official. With your advisor's help, you should be able to set the benefits of retirement against the financial risks - allowing you to make the decision to retire a logical as well as emotional one.

Questions? Email me at wesley@thewandwgroup.com and visit our website at www.thewandwgroup.com. New Money Talk is a weekly article focusing on retirement, personal finance, and estate planning.

Comments and questions are welcome, but because of the volume of email, personal responses are not always possible.