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Making the transition to retirement after decades of hard work is one of life's major accomplishments. You are certainly entitled to a happy retirement. You may have already started daydreaming about it, at least a little. Will you travel the world, volunteer for your favorite charity, go fishing, or spend more time with the grandkids? The possibilities are endless.


Even so, many workers are still afraid of retirement. They've heard too many horror stories about people who retire too soon and find that their income and lifestyle severely dampened. So how do you know when the timing is right? Here are five signs that indicate you're ready to retire if you want to.

1. You've Reached Full Retirement Age (FRA)

If you were born between 1943 and 1954, your full retirement age for Social Security purposes is 66. If you're born after 1959, you’ll have to wait until you’re 67. Between those dates, it's 66 and some months. Although you can start claiming Social Security benefits as early as 62, your benefits will be much higher if you wait until full retirement age. If you start your retirement benefits at 62, your monthly payment is reduced by a whopping 25%.

On the other hand, if you wait even longer to claim Social Security—the maximum age of delay is 70—you'll receive as much as 132% of the monthly benefit you would have collected at your full retirement age.

2. You're Debt-Free

If you've paid off all of your debts - including student loans - you are well-positioned for retirement. But if you have credit card debt or still owe a lot of money on a home or car, you may want to postpone retirement until you are fully free.

When you’re on a fixed income, a hefty mortgage or car payment can put a major strain on your finances. It also makes it more difficult to deal with unexpected expenses. So, before you hand in your retirement notice, try to pay down most, if not all, of your outstanding debts.

3. You're No Longer Supporting Kids or Parents

Are your kids all grown up, out of the house, and earning their own income? That makes it a lot easier for you to retire.

However, if you're still supporting your kids or helping them out regularly, you may want to put your retirement plans on hold for a while. You might also hold on if you have elderly parents who need your financial support—or may need it down the line. Supporting aging parents or kids at home is becoming more expensive as college and housing costs continue to rise. There is no way a couple can downsize and start minimizing their expenses if they have a household to take care of.

4. You've Created a Retirement Budget

This may seem like a no-brainer, but many soon-to-be retirees don't crunch the numbers. Before you leave your career, it's important to figure out whether you can live comfortably on your post-retirement income.

Start by adding up your must-have monthly costs, including mortgage or rent, groceries, electricity, and other utilities. Then add in your "wants," such as travel, entertainment, shopping, and dining out. Once you’ve calculated your estimated monthly expenses, it's time to figure out whether you'll have enough income to cover them. Add up your estimated Social Security benefits, retirement account distributions, pension payments (if you get them), and any other sources of income you will have. Remember that you will owe income taxes on all distributions except Roth IRAs, Roth 401(k)s and a portion of Social Security (unless you meet the income threshold for tax-free Social Security benefits).

Do you have enough to cover your monthly expenses, including at least some of those wants? If so, you might be ready to retire.

5. Your Portfolio is Updated

How long has it been since you took a hard look at your investment portfolio? Yes, that means your personal savings, 401(k) or 403(b), IRA or any other investment accounts.

There are three parameters that influence one’s ability to live off one’s savings at the onset of retirement: First, the size of the savings or investment portfolio upon retiring; second, the expected growth rate of the portfolio going forward (the average annual return), and third, the amount of annual withdrawal/consumption the retiree is going to require to maintain this/her lifestyle (or not).

If you haven't done a portfolio checkup in a while, now is the time to do one. If your portfolio has taken a major hit in recent years, your nest egg may not be as large as you thought. 

As you near retirement, you may also want to shift to a more conservative investing strategy to protect your retirement wealth.

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