Everyone knows when you’re driving, green means go, yellow means we proceed with caution and you press on those brakes when you see red.
Same thing goes for seeing red flags when doing your financial planning.
What do I mean by retirement red flags? I’m talking about all the things you need to consider before leaving the workforce like…
- Major upcoming expenses
- Outstanding debts
- Understanding how much you really need to be set for the rest of your life
These are all really important things to map out when planning your retirement and I don’t want to see you in a bind because of something you didn’t consider early on. Take the red flags out of your retirement planning, pass go and make your retirement the best it can be.
Hey there. Welcome to episode 39. Today let’s talk about some signs that you should not retire yet. I’m going to go quickly through a few red flags to watch for. The first sign is are you having trouble paying the bills?
If cash flow is really tight right now, that is most likely a sign you shouldn’t retire right now. Certain fixed expenses are just going to continue to go up every year. Utilities, property taxes, food, entertainment, and inflation. They’re not going anywhere and they just go up. So you’re going to need a buffer and if things are tight right now that definitely is a sign.
Okay, next red flag. You have no cash or emergency savings. Do you have something squirreled away? Do you have some liquid cash on hand? The amount will be different for everyone, but you need to find that sweet spot for that amount. That’s why I call it that because everybody has a different number of what they feel comfortable with having in their cash savings account at all times.
It’s important. You gotta have some cash on hand.
This leads to the next sign or the next red flag. That is that you have no plan for future major expenses, meaning you haven’t even thought about it. You haven’t looked far enough in advance. You haven’t got a bucket that you’ve thought about or put aside.
So think about it. You know how repairing or replacing a vehicle, new shingles, the furnace goes. It’s those things that you don’t know exactly when they come up, but we know eventually they will. It’s not a matter of if, but it’s just a matter of when and you need a plan for how you’re going to cover the cost.
So put pen to paper, think about them and then have a plan for what bucket you can use to pay for them. Now you want to make sure it’s not a taxable bucket. That’s really, that red flag you haven’t even thought about. If major expenses are coming up, sit down, make a list.
The next red flag is debt. This is a warning sign that you will want to pay it off before you stop working. I have seen even manageable debt being a part of the plan of retirement income. Of course, that was their choice because we always try and encourage you to not have debt when you retire.
It became a monkey on this person’s back. It is an emotional bag they carried around with regret. I don’t want you to feel this. It sucks the joy out of your retirement. So flag debt. If there’s a lot of debt, just sit there and go through that. Ask yourself, “What is the plan to pay it off?”
Maybe you shouldn’t be retiring. Another sign – you have absolutely no idea of what retirement income will be coming in. You have no idea what the Canadian Pension Plan amount is. You have no idea what your RSP income would look like. You haven’t gone through that. You haven’t taken inventory and mapped out everything to determine how much you have and if it can last your lifetime.
Retiring in the dark without knowing where, how much, the best tax choices and a strategy is going to leave you feeling scattered. It’s going to erode that money confidence and cause stress. Never mind the fact that it might actually help you make poor choices and possibly lead to regret down the road.
You really need to take stock of everything. If you haven’t, there’s your red flag. And actually, it’s not all about money. This is a red flag of – if you have no hobbies or activities or friends outside of work. I have seen this – there’s a little bit of depression and finding purpose right away.
If someone has retired and they just press that button and that’s it, they’re done. They walk away, sever ties with work and they never find their sense of self or community before retirement. So this is a sign that you might want to explore some of this before you leave your workforce where your coworkers and work fill your life.
It’s time to build a life outside of work while you’re working. That’s what gives you the mental ease and prep. It makes the transition easier. So there you go a few quick red flags or lists that you can use as a guide. Hopefully it’s been helpful. Any questions? Send me a note, [email protected]. Until next week, take care.