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Reaching your retirement years allows you to reap the rewards of a lifetime of hard work. For some, that means traveling around the world; meanwhile, others find fulfillment in leisure, hobbies or passion projects. But before you can enjoy this chapter, you’ll need to do some proactive planning, especially if you’re aiming for early retirement.

According to a 2022�� the average retirement age is 61 years, while those currently working expect to leave the workforce by the age of 66.��With so many factors to consider, retiring may seem daunting. But with a little help, you can sort through the key questions to help determine the best path to retirement.��All it takes is a little forethought and preparation��– and the earlier you start planning, the better.

As you think about your journey to retirement and outline a potential plan, it’s important to consider the following questions:

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1. HOW DO YOU WANT TO SPEND YOUR RETIREMENT YEARS?

While many people start thinking about retirement in terms of when they’d like to leave the workforce, it might be more helpful to think about what you’d like to do with your free time first. Understanding how you’ll��spend your time and money��in your retirement years is an essential part of developing a realistic financial plan. For instance, if your dream is to buy a boat and head straight to the tropics, you’ll likely need a much larger retirement fund than someone who’d rather just go golfing. Thinking carefully about what your retirement lifestyle might look like can help you create a general outline of your overall expenses.

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2. WHAT ARE YOUR RETIREMENT GOALS?

Narrowing down your focus, the next step is to consider concrete retirement goals. Now is the time to ask yourself when exactly you’d like to retire and identify how you’ll get there. Do you want to leave the workforce before the age of 61? Or do you want to wait until full retirement age to maximize your Social Security benefits? Maybe you’d prefer to keep working part time to maintain supplemental cash flow. In any case, understanding when and how you’d like to retire will help you lay the foundation for a savings plan and withdrawal strategy that helps allow you to live comfortably later in life.

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3. WHEN IS THE “RIGHT” TIME TO RETIRE?

The full retirement age, or the age at which you can receive all your Social Security benefits, is set at around 66 to 67 years old, depending on your birth year.��Of course, that doesn’t mean you have to wait until then or quit before you’re ready to say goodbye to work. For many people, the workplace provides a sense of fulfillment and community – not to mention a source of income. That’s why some opt for a��phased retirement that has them gradually step back from work. Ultimately, the “right” time to retire is most likely when you feel prepared enough, both financially and emotionally.

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4. IS EARLY RETIREMENT IN THE CARDS?

The Covid-19 pandemic caused a shift in the way many people saw work, correlating with a spike in early retirement.��If you’re also looking to retire early, you’ll need to consider:

1. Whether your current financial situation and investment strategy can support your goals
2. Whether you’ll truly be fulfilled after the novelty of retirement wears off

While an overly ambitious plan might need some adjustments,��catching up on saving for retirement��is not as difficult as you might think. But retiring early also means that you’ll receive smaller Social Security benefits if you start withdrawing right away. You’ll also need to purchase health insurance since you won’t have an employer-sponsored plan and Medicare isn’t available until you’re 65.

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5. HOW MUCH RETIREMENT SAVING DO YOU NEED TO DO?

The amount of money you need to save before you can retire will depend on a wide range of factors, including:

• Your intended retirement lifestyle
• Potential health care and long-term care expenses
• Your retirement income streams

While there’s no��magic number you need in your retirement fund, one easy way to roughly estimate the savings you’ll need is to divide the annual income you want by 4%. For instance, if you think you’ll need at least $100,000 per year after work, then 100,000 ÷ 0.04 = $2.5 million. But that doesn’t mean you have to save all $2.5 million in your retirement account. It’s better to have multiple income sources, such as a pension plan, 401k plan and Social Security benefits.

Of course, how much you need to save will all depend on your overall expenses.

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6. WHAT WILL YOUR EXPENSES LOOK LIKE AS A RETIREE?

When forecasting your retirement expenses, you’ll want to start by tracking your monthly bills to understand your cost of living. You’ll also want to consider other ad hoc expenses, such as vacations, gifts, inheritance, health care,��long-term care��and emergency spending. While it might sound overwhelming to calculate all these costs, it helps to start by monitoring your current spending, factoring in elective costs for your new lifestyle and anticipating the impact of any unexpected costs along the way.

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7. HOW MUCH WILL HEALTH CARE COST?

Your employer likely provides some forms of health and life insurance, but once you pass your retirement date, you’ll likely be responsible for your own policies. This might include an individual plan or Medicare. You can also purchase add-ons to extend your Medicare coverage.

But your retirement health care costs will be more complicated than just insurance. In addition to saving for unexpected expenses, you should also think about the cost of a��continuing care retirement community��further down the line – if that’s something you’re interested in or think you or your partner may need.

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8. WILL YOU HAVE ENOUGH RETIREMENT INCOME?

How much money you need to retire will vary depending on your own personal lifestyle, assets and retirement goals. Some experts suggest having 10-12 times your annual income at retirement age. But there are several factors that may impact that number, from the expenses you’ll have during retirement, to health care costs and even whether you may be planning to move to another state where the taxes may differ. Your portfolio balance and the monthly retirement income that you’ll draw should be determined after considering all these factors as part of an integrated retirement plan.

But where will this cash flow come from? With an effective��retirement income strategy, retirees can utilize a variety of sources, such as:

• Social Security benefits
• A pension plan
• A traditional and/or Roth IRA
• Retirement savings accounts like a 403b or 401k plan
• Other investments and savings accounts

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9. WHEN CAN YOU CLAIM SOCIAL SECURITY RETIREMENT BENEFITS?

With speculation about cuts to Social Security, many retirees are wondering whether they should start taking the money “before it runs out” – even if they just turned 62. While you can technically start claiming Social Security at that age, you’ll get a reduced benefit, the drawbacks of which can add up over the long term. On the other hand, waiting longer to claim your benefits will increase your payments. If you��delay it until you’re 70, you could see a rise of as much as 8% per year.

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10. HAVE YOU CREATED A RETIREMENT PLAN AND WITHDRAWAL STRATEGY?

If you plan on selling investments to supplement your retirement income, you’ll want to develop a plan to increase cash flow and reduce spending during market fluctuations. You’ll also want to craft a��retirement withdrawal strategy��for all your accounts before you reach the age of 73 and have to take out Required Minimum Distributions. Otherwise, you might end up having to pay significant penalties for simple errors. It’s also important to consider how potential volatility and high inflation might affect your withdrawal strategy.

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11. WHAT WILL TAXES LOOK LIKE DURING RETIREMENT?

An ��found 48% of retirees did not understand how taxes were going to impact their financial situation in retirement. As you’re developing your retirement plan and withdrawal strategy, it’s critical to understand how your investment portfolio will be taxed during retirement years. For instance, tax-deferred accounts, such as��401ks��and traditional IRAs, are taxed as ordinary income with a 10% penalty for early withdrawals if you’re under 59.5.��Borrowing from these accounts too early can have significant consequences for your retirement fund. On the flip side, there are a variety of tax-efficient options you can use to make the most of your savings.

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12. ARE YOU CURRENTLY LEVERAGING A FINANCIAL ADVISOR?

One of the best ways to help maximize your retirement plan is to partner with a financial advisor who can help you review your many options. Whether you’re worried about��retiring in today’s market��or you just want professional retirement investment advice, a financial advisor can develop a strong wealth management strategy that can help get you one step closer to achieving your goals.

If you choose to work with a financial advisor to help optimize your portfolio, make sure to ask a lot of questions to gain a better understanding of your current position. And ask any advisor you’re considering if they’re a fiduciary, required to always act in your best interests when it comes to investment advice.