The 6 Crucial Questions to Answer Before You Retire

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Readers and friends often ask me about the retirement decision-making “process.” How do you prepare, a year out, 6 months out, 3 months out? Do you need a written plan in advance? What about contingencies? Do you just pull the plug, or is there a more systematic way? When is it really safe to leave?

I’d be stretching the truth to say that I followed a meticulous, step-by-step approach to my own early retirement. Yes there were benchmarks and milestones that I observed. There were critical tasks I knew I had to check off. But at the time it wasn’t a perfectly integrated process.

Now, in retrospect, I can see that it was all about answering a half-dozen key questions. So, here they are for your benefit in thinking through the biggest financial decision of the rest of your life….

1. How much does it cost me to live?

Go to any professional financial advisor for a retirement plan, and the first thing they’re likely to hand you is a questionnaire about your living expenses. Unless you’re fantastically wealthy, it’s simply impossible to prepare for retirement without knowing how much it will cost you to live each month. That number will dictate the required size of your nest egg, and will figure in how you should allocate and draw down your assets.

Though it’s not strictly necessary, I strongly preferred to have my major life expenses behind me before I got serious about retirement. That meant no debt of any kind. Our house had been paid off for years. But my son was partway through college. And, it wasn’t until he had reached a point that I could predict education expenses for the remaining years, that I was ready to pull the plug on my own full time career.

More reading: Our Retirement Expenses: Where Does the Money Go?

2. How will I get health care?

When I retired in 2011, and for many years before that, it was extremely difficult to claim your freedom before full retirement age for this simple reason: health insurance wasn’t available at reasonable cost! Unless you were one of the fortunate few who had worked for the government or a very large corporation, retiree health benefits were nonexistent. I worked in small business or as a consultant most of my professional life, and the options were grim. You might scrape by on COBRA for 18 months, then convert that into an individual policy at exorbitant cost, but only if your health and the insurance companies cooperated. Fortunately, my wife had retirement health care benefits through her public school teacher position.

Now, Obamacare has changed the landscape for health care both pre- and post- retirement. But it has not perfectly simplified your choices, nor made them affordable in all cases. You’d still be well advised to explore and confirm your health care options carefully before burning any bridges behind you on the way to retirement. And you’ll have to keep one eye on the courts and the political environment to guess whether Obamacare will survive in its current form or not.

More reading: A Guide to Retirement Health Care – How Will YOU Get It?, Shopping Obamacare: Comparing Plans / Awaiting a Verdict

3. How much do I need to have saved?

This is the retirement question that typically trumps all, though as I’m showing here, there are other important questions. People obsess about this number, and financial advisors are all too happy to indulge their worries with fees for sophisticated retirement plans, updated annually, that supposedly dispel all uncertainty.

The bad news is this simple truth: nobody can predict the future. And the farther off that future, and the more variables involved, the less predictable it gets. That’s retirement planning. The good news is that you can achieve enough certainty to make a decision. I did, and so have many others.

The very simple answer to this question is that you probably need a nest egg between 20-33 times the shortfall between any guaranteed income like Social Security or pensions and your annual expenses. (That’s between a 3% and 5% withdrawal rate.) Where in that range you fall, depends on your age, your views about your future, and your lifestyle flexibility. I recommend comparing results from 3 good retirement calculators to gain more confidence.

More reading: The One Retirement Question You Must Get Right, 10 Tips for More Accurate Retirement Calculations

4. How will I withdraw from my savings?

The second greatest conundrum in all of retirement planning, after how much you need, is probably how do you withdraw from it over the years? There are nearly as many opinions, products, and services as there are pundits, academics, and financial advisors. You can do fixed withdrawals, or variable withdrawals in several different flavors each. You can annuitize: turn the decisions, and the profits, over to an insurance company. You can, if you’re fortunate, just try to preserve capital, living off interest, dividends, growth, and some part-time work. (That’s my current strategy, more or less.)

This topic is a hotbed of research. Maybe that work will eventually produce a safe, simple turnkey retirement income system that we can all trust. Meanwhile, the watchwords “flexible” and “dynamic” keep popping up. Turns out there may not be one, static way to live off your assets in retirement. Rather, a hybrid of existing strategies could be best. And you can’t just set and forget it. You’ve got to revisit your expenses, and your assets, and the state of the world, at least annually. You, or an advisor, must personally “drive” your retirement finances. You can’t just put them on cruise control. Since the rest of life works better this way too, should we be surprised to hear the same about retirement?

More reading: Retirement Withdrawal Strategies

5. What will I do all day?

Most of us who have entered retirement on the early side, with decent health, interested in experiencing and contributing to the life around us, aren’t satisfied with a full-time leisure lifestyle. Yes, it is great to make your own hours, to go on vacation whenever you choose, to catch up on your bucket list and all the things you wanted to do when you were younger. I’ve done a lot of that. But it only goes so far.

It is most helpful to long-term happiness if you can identify some retirement activities that are not only fun and recreational, but also creative, productive, and generous. And it can be smart to test-drive those post-retirement options before you say goodbye to your career.

Some people discover their career is their ongoing passion in life. No shame in that. In fact they are very fortunate, in a way. Either way, best to explore your true calling, before you quit your job!

More reading: What Will You Do When You’re Retired?, Should You Work One More Year?

6. Do I have a backup plan?

The earlier you retire, or the higher your withdrawal rate against your savings, the more potential for dramatic financial changes that could throw you out of any retirement game plan. That change could be good. That has been the case in my early retirement so far: The bull market has continued, we received a modest inheritance, and this blog has thrown off a bit of income. But I don’t take any of this for granted. And neither should any retiree facing decades of life and political and financial uncertainty ahead.

What will you do if your expenses are more than planned, if market returns are lower, if inflation is higher, if Social Security is cut? Could you work, full or part-time, to produce income if needed? (If you choose not to maintain your previous skills and contacts, be certain you won’t have to go back to your old career!) Or, would you have to compensate by adjusting your lifestyle? Typically, the older you are, the less flexibility you have to make adjustments, but also the fewer years you’ll be exposed to potential big financial changes.

In general, coping with any economic stress involves either increasing your income, or reducing your expenses. In traditional retirement, say from your mid-60’s on, the options are limited. On the income side you could annuitize investment assets to increase the effective withdrawal rate, or take out a reverse mortgage if you have untapped home equity. Both of these options reduce your control over your assets. On the expense side you could reduce discretionary spending, or downsize. For many people who are “house poor,” downsizing is among the most effective options.

More reading: The Optimal Mix: How Much Annuity Do You Need?, Transforming Home Equity Into a Better Retirement

Leaving Work

So, you’ve answered these half-dozen crucial retirement questions as best you can. You know your living expenses and how you’ll get health care. You’ve saved enough, and you have a strategy for withdrawing from those savings in retirement. You have a plan for how you’ll spend your time, and a backup plan if there are serious financial surprises.

You’re now ready to disengage and say goodbye to your career. How do you go about that?

My own departure went reasonably smoothly, but not perfectly. Change is never easy. That’s because this is the point where you leave the numbers behind, and deal with human beings.

Most likely you are a valued employee, or you wouldn’t have reached this point in the first place. You want to leave on the best of terms, ideally at the end of a successful project, when your organization is best positioned to deal with replacing you. After all, you’ll remember this transition your entire life, and you don’t want any regrets, if possible.

You start by telling your boss, then your closest colleagues, then the others. If possible, you take a hand in your succession planning, choosing and training those who will replace you. But, at this point, you are forced to admit that you are no longer in control of the process. You’ve chosen to leave, and hand over the reins to those left behind. Accept that. You’ve got an appointment with the rest of your life.

Finally, you say “goodbye,” ideally with some affection and appreciation. Then, you turn around, step forward, and launch into the next stage of your life….


  1. Very interesting post. Reading it makes me feel both more and less confident in our early retirement planning. We have considered and are developing plans for all 6 areas which makes me feel we’re not missing anything important.

    Healthcare is the one area that is ridiculously frightening to us. Hopefully, we’re moving in the right direction with regards to affordability for early retirees with Obamacare, but I have little confidence that is the case at this point in time. I work in the healthcare field and congress has not even yet finalized the regulations that effect our Medicare reimbursement for 2015 now that we are a full 3 months in to the year. It is unfortunate that so much of our retirement plan’s success or failure is dependent on the decisions of these politicians who constantly kick the can down the road, leaving us with complete uncertainty.

  2. Natalie Locke says

    Darrow, I greatly appreciate you sharing your thoughts and lessons in your blog. I have always said that there are enough mistakes to be made in life that I certainly don’t need to make the ones that people are willing to share nor do I need to learn things the hard way. Since your wife was a teacher and has retirement health insurance, she likely retired with a pension from the school system. I am presuming a public school system. In the state I live the public school system pensions are very good, much more than private pensions and much better than Social Security would pay. This provides a stable known source of income for you. If you did not have this stable source of income, would you still have been able to retire when you did or did having this source (presuming my presumption is correct) make the difference between retiring so early and waiting a few more years? Health insurance is a really big deal and for those not paying attention to the issue, you should be. Without a national healthcare system like the rest of developed countries, Obamacare is the best thing we got and needs to be in existence. Otherwise, retiring early cannot happen.

    • Glad this post was helpful Natalie. Appreciate your philosophy on learning from others. Caroline entered her teaching career late, having stayed home in the early years to raise our son. She worked just enough years to qualify for retirement benefits and a minimal pension (about $100/month). So, no, the pension didn’t figure into my early retirement at all. But the health care benefits were critical. I couldn’t have done it without her!

  3. Great points to think about before pulling the trigger. Definitely the most important I believe is #1, as #3 is a direct calculation off #1 in most cases. Figuring out your go-forward budget is crucial. Many of your costs may decrease like gas, car maintenance, and clothing; while other items like health insurance may rise.

  4. “Leaving Work” – looks to be the easiest thing I’ll ever do: I will be a “displaced worker” on April 24 (i.e., laid off and no longer “active” at the company I have been an employee with for 29 years). I figure I reached this point because I was contributing; the employer evidently thinks differently. I will walk out the door and never look back. What’s the future look like? I have a list longer than my arm of things I have not had time to do (being a full-time wage slave has essentially gotten in the way of living). Only trouble is, I am only 60 yrs old and my retirement horizon was another five plus years out there. Financing this “second career” will be a challenge. Bring it on!

  5. Hi, Darrow,
    Thank you for this timely blog. I am at the point in my retirement decision and actions whereby I am close to “pull the plug”. I have been seeking out the appropriate questions – and answers to these questions, as best as possible – to make sure I have addressed all my needs for retirement. Your summation of the key questions and approaches to answering them personally, has helped give focus to where I am in the process. The health care issue is my most incomplete and impactful question to resolve. This became relevant when just as I was about to give notice of retirement, I was informed that I need to have feet (both) surgery. Nothing major but recovery can be up to 6 weeks. So I have decided to continue on the job under their health insurance plan. It will give me more time to research Obamacare and/or COBRA as I just turned 62 this month. I also need to understand Withdrawal Strategies. I do have a succession plan at work, and, thankfully, they are allowing me to make the final decision on the departure date. I am hopeful to work part-time for a couple years afterwards, but my expense budget is flexible if that does not happen or if I change my mind.
    Thank you for your simple, practical and timely articles.

  6. Good article. I am six months from my retirement date. So I have pondered all of the questions you posed. In my case my living expenses are more than provided for by my pension (generous) and our (wife included) Social Security. We could if necessary live just off of our Social Security. I have made good money and worked consistently since I was 19 years old. So our Social Security benefits are higher than average. And I live frugally and the wife is compatible with that.

    The biggest hole of the unknown for us is health insurance. My company a government utility has traditionally provide retirees and their spouse health insurance. The spouse is now being phased out but with the option of buying her in yourself. Fortunately she is already of Medicare age. While they will still provide health insurance for the retiree that is not a vested right. So I checked the ObamaCare site for the cost for a platinum plan in my area for me. It would be a little over 600 a month. That is affordable for me. I would not get any subsidy as I make even in retirement way too much money to qualify for that. With out ObamaCare I would not retire before I was of Medicare age. Two groups of people are greatly helped by this program, early retirees and young adults. Two groups notorious for difficulty getting health insurance under the old system.

    I have saved in a 457B plan for decades. I do not need that money and taking a distribution from it will push me into a higher tax bracket. Eventual at RMD age I will have to deal with that. I am still aggressive with this money as I am 8 years away from drawing on it. And can live with out it comfortably.

    I plan on gardening, traveling, fishing, going to school, teaching, camping and other assorted activities in retirement. I could also go back to work as I have several professional licenses that are always in demand. So at least in earlier retirement a back up would be going back to work. And I could use some of my investments to live off of if necessary.

    Over the last two years and the next two years my whole department is retiring or retired. So we have been for four years mentoring young associates. They will do fine and I do not see any disruption after the last of us leaves. This is a common problem with governments and utilities. The generation behind us is smaller and those who were not proactive like my employer was are going to have much trouble.

    What I have found out there are many ways to skin a cat and get to a comfortable retirement. Some people bought up houses to rent, others started up small businesses while some saved and invested intelligently. Some were lucky like me and have old fashion pensions. But almost all of us will have to cobble together enough income from several sources. Keep up the good work Mr. Kirkpatrick. And thank you. Your articles have inspired me and provide valuable information to prepare for my upcoming retirement.

    • Thanks for sharing your wealth of real-world experience Stephen. Sounds like you have worked very diligently, planned very carefully, and can now look forward to a very secure and enjoyable retirement. Best wishes!

  7. I retired early, age 58, because after a long discussion with my wife and her decision to continue working a few years longer made the choice easy. We had what we calculated to be enough to live on after she retires and the fact we would live on her salary as a practice to total retirement for the both of us. I liked my job and the people I worked with but the new owner of the company made doing my job correctly terribly complicated. So far, after 4 years things have worked out well. My wife plans to retire in 2 years at age 63 so I guess you could call her an early retiree also. We are new grandparents for the first time and help out babysitting and financially when we can. Looking forward to total retirement with the Mrs. Preplanning is an absolute must if you want to feel at ease during early retirement. I keep going over finances to make sure we are on track and we are. Thanks for the advice along the way.

  8. Retirement is still a few decades away for me, assuming things go to plan.

    Healthcare is definitely my top concern. Having dealt with COBRA and being individually insured in the past, the thought of paying my own insurance as a pre-Medicare retiree is daunting.

    And there’s always college. Given we started our family late in life, balancing college costs vs healthcare as we approach retirement should be an interesting juggling act.

    • Hi, Jack,
      Advice given to me about funding children’s college costs – fund your retirement first and encourage the child to achieve academic excellence to earn scholarships. If you do not have your retirement funds, then your children may be caring/paying for you because you have come up financially short. So let them pay for their own college and then they will not worry about having to pay for taking care of their parents during retirement. Also, I have seen friends and family throw money at children’s college education, only to have them not finish the degree. Making it their own adult responsibility gives ownership and pride to the accomplishment.

  9. Nice article, Darrow.
    My wife and I have been “retired”, or more like “semi-retired” for 18 months (self age 62, wife 58). We found that downsizing, getting down to one vehicle and maintaining part time work gives us flexibility to travel, and continuing financial peace of mind. Looking at your list, those three choices eliminate 4-5 of the 6 concerns mentioned.

  10. earlyretired says

    The only disconnect I have is the thread on healthcare….In our case, we buy our our own house insurance, flood insurance, car insurance, and health insurance. Its always been very straight forward. The only item on this list that has changed over the last 10 years is health insurance.

    Before Obamacare, my wife and I paid $257/ m for a $10,000 deductible plan. We were very happy with this plan. It worked well and was efficiently administered by Assurant.

    After Obamacare was introduced, our policy was cancelled. The only policy we are now “allowed” to buy is an Obamacare plan. The cheapest available is $626/m for a $12,600 deductible plan.

  11. SteveJohnson says

    I run a small business. Before Obamacare, the premium for my family was $750 per month for a $5000 deductible.

    After Obamacare, (my plan got cancelled), the premium for a similar Obamacare plan was now $1200 per month with a $6000 deductible. I guess I am supposed to be happy though because I receive “help” in paying for this from other taxpayers. My portion is now $650 per month.

    Though the premium that I personally pay is about the same, I now have to suffer the indignity of having some other unnamed human being subsidize me. I’ve never taken a handout in my life, but now I really don’t have a choice.