Liz Pulliam Weston

The Basics

10 signs you're not ready to retire

Before you report for your last day of work, be sure that you've taken care of these details. You could save yourself a whole lot of money and regret later.

By Liz Pulliam Weston
MSN Money

The retirement party may be scheduled, the RV may be packed, and you may have perfected the speech where you tell your boss what you really think.

You may think you have enough money and a good idea of what you'll do with your time. You may even have dodged the ways you could blow your final years that I detailed in "5 ways to wreck your retirement."

But you're not really ready to retire if any of the following are true:

1. You don't have a budget. For most of your working life, trying to estimate your expenses in retirement has been a guessing game. It's hard to know, 20 or 30 years out, what your future life will look like.

As you bear down on retirement age, however, you should have a much better idea of your expenses and the income that is supposed to cover them. Although some costs should drop, such as work clothes and commuting, those savings may be more than offset by increased spending on travel and hobbies.

Consumer Reports has a worksheet to help you detail your pre- and post-retirement expenses. (Your investment income shouldn't exceed 4% of your portfolio -- more on that in a minute.) If your post-retirement expenses exceed your expected income, you'll need to work to trim them or plan on working longer to boost that income.

Consumer Reports also recommends that you try living on your retirement budget for a few months to make sure it actually works before you stop working.

2. You're expecting to live on interest and/or dividends. If you're really rich or you plan to live like a monk, this might work. But yields have fallen by about half in the past 20 years, and many companies cut their dividends during the recession. In today's world, most of us need to discard the idea that we can't touch our principal or that we can put all of our money in low-earning investments.

Let's take that latter idea first. Sticking to low-risk investments such as certificates of deposit and Treasury bonds may give you a feeling of safety, but that's an illusion. Eventually inflation will return, eroding the value of those investments and your spending power. Even a 3% inflation rate will cut the buying power of a dollar in half over a 20-year retirement. You'll need at least some exposure to stocks if you want to overcome that erosion.

As for never touching principal -- well, most of us won't have saved enough for that to be an option. We'll have to spend down our principal over time if we want a decent standard of living. What you don't want to do is drain your retirement funds too fast. Your initial withdrawal from your retirement funds shouldn't exceed 3% if you're in your 50s or 4% if you're in your 60s, according to studies by mutual fund company T. Rowe Price. The company's retirement income calculator can help you see whether your withdrawal rate is sustainable, given your investment mix.

3. You haven't road-tested your dreams. I recently encountered a couple who moved from California to a small city in Washington state. On paper, the community looked ideal: Housing was less expensive, good health care was accessible, and the area was loaded with golf courses (golf was a particular passion of this couple). But golfers in the Pacific Northwest have to like, or at least tolerate, playing in the rain, and this couple emphatically did not. In the abstract, they thought they could handle wet weather; in reality, it made them feel trapped.

Experts on relocation in retirement recommend spending a long vacation or two at your proposed destination to make sure it's a good fit. If you're planning to move to a different climate, try visiting in the most difficult season -- August in Arizona, for example, or December in Duluth, Minn. Road-testing your dream is also essential if you're contemplating a new career, such as running a bed-and-breakfast in retirement.

At the very least, you should talk to other people who have done what you want to do and "learn from them what it takes, the joys and difficulties, what it's like on a day-to-day basis," said financial planner Ed Jacobson, the author of "Appreciative Moments: Stories and Practices for Living and Working Appreciatively."

"It's always good to test one's dreams or fantasies," Jacobson said. "It's far better to benefit from the information, experience and acquired wisdom of those who have preceded us on the path we're contemplating in retirement."

Continued: Understanding Social Security

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