Want in on the great retirement boom? Here are the five things you should know.  (iStock) | I laughed when my daughter recently said she was ready to retire. She's 26. Of course, she wasn't serious, but nine months into full-time employment and she's already thinking about how she can retire early at 55. And she's not alone. Early retirement was typically a choice reserved for the more prosperous. But then a global pandemic hit and, at least for now, it has changed the trajectory of a lot of workers. A significant share of people leaving their jobs in "Great Resignation" are early retirees. Rising house prices and a supercharged stock market are giving them the financial confidence that they can afford to call it quits. But analysts warn that high housing prices and a possibly overheated stock market could be giving people a false sense of financial security. Before you join the ranks of retirees, you need to consider a number of factors to see if you're financially ready. Here are five questions you should be asking yourself. Is this the right time to retire? By the third quarter of this year, about 50 percent of U.S. adults 55 and older had left the labor force due to retirement, according to a recent analysis by Pew Research Center. Between 2008 and 2019, the ranks of retirees 55 and older grew by about 1 million per year. But just in the past two years, that population has jumped by 3.5 million, Pew found. This retiree resignation trend contrasts to with the Great Recession, when retirement rates declined, which is what typically happens in an economic downturn, according to the Pew analysis. Unlike during the Great Recession, the covid recession has seen increasing home prices and record-high returns in the stock market, even accounting for sharp sell-offs. Watching so many people become ill and millions die of covid may have you reevaluating your own life and how much time you have left. A long commute, stressful job or bad boss may just not be worth it anymore, you tell yourself. Yet, the decision to retire early, if you have that choice, should be done with careful consideration of affordability. Facts, not just your feelings, have to reign. This means running your numbers. Think about what your retirement budget is going to look like and how that might be different from your preretirement budget, says Christine Benz, director of personal finance and retirement planning for Morningstar, an investment research and services company. Many retirees underestimate their retirement expenses. Yes, you may cut costs associated with working, but you'll still have to budget for your living expenses, such as rent or a mortgage. A LendingTree study, which looked at Census Bureau data, found that nearly 10 million homeowners paying off their mortgage are 65 and older. Depending on where you live, travel plans and health-care needs, you could still have expenses that amount to 70 percent to 80 percent of your preretirement budget. What additional factors should I consider before retiring? After you've created a retirement budget, consider sources of income other than your investment portfolios, such as a pension, annuity income or Social Security. "You want to just see how much of my baseline income needs can I replace with these very consistent lifetime sources of income," Benz says. Part of this analysis will entail deciding when to take Social Security. Whether you start collecting at 62 when you're first eligible or wait until 70, when your benefit maxes out, depends on your personal situation and financial needs. Once you've evaluated your noninvestment income, move over to your investment portfolio and start thinking about your withdrawal rate. What's a reasonable withdrawal rate for my investment portfolio? Generally, experts have advocated a 4 percent starting withdrawal rate, adjusted for inflation, as an appropriate level for retirees. In other words, if your account has $1 million, you would budget to withdraw $40,000 in the first year of retirement. Here's the thing. Some retirees may be overconfident about this typical advice given current factors, according to a recent report from Morningstar. Taking into account estimates of future investment performance and rising inflation, Morningstar argues the standard rule of thumb might need to be lowered to 3.3 percent for some retirees. "Because of the confluence of low starting yields on bonds and equity valuations that are high relative to historical norms, retirees are unlikely to receive returns that match those of the past," according to Morningstar. It's important to keep in mind that even these withdrawal rates assume someone is retiring in their mid-60s with an estimated 30-year horizon. If you're retiring earlier, you might need to limit your withdrawals even more. "You might want to be even more conservative with your assumptions," says Benz, a co-author of the Morningstar withdrawal rate report. Some seniors may be able to withdraw higher amounts. "We don't want to scare people because I do think that 4 percent is probably a decent starting point, at least for stress-testing do I have enough," Benz says. "And if you want to be more conservative, which I think is probably realistic, you could maybe take that down further still." Should I be worried about keeping money in the stock market after I retire? You are not being unreasonable to be scared about downturns in the stock market. "New retirees or prospective retirees especially should be on guard because that's the killer when big market sell-offs hit early on in your retirement, when your portfolio's at its largest," Benz says. "And, if you're simultaneously spending too much during that period, it leaves less of your portfolio in place to recover when the market eventually does." Position yourself to have savings you could draw upon early on in your retirement so that you're not having to touch stocks while they're down in the dumps, Benz recommends. Do I need help from a financial planner? Retirement planning encompasses so many decisions that you may need a professional to help you run the numbers. So, yes, consider hiring a financial planner. "I would encourage people to engage with a financial planner even on a one-time basis to just get a checkup," Benz says. "They may be able to point out things that you hadn't considered such as, 'What would your plan be if you had big long-term care costs later in life?' This is important enough that it's worthwhile to get a second set of eyes on the plan." Reader Question of the Week If you have a personal finance or retirement question, send it to colorofmoney@washpost.com. In the subject line, put "Question of the Week." Please note that questions may be edited for clarity. Q: This situation involves an elderly mother and her adult daughter. The daughter had the mother sign what we think is a power of attorney. We think this is for financial matters as well as medical issues. The mother signed papers without getting copies. Then the mother had a stroke and cannot remember what happened. What can the mother, my sister-in-law, do? She's on a fixed income and can't afford a lawyer. She thinks the house is now in her daughter's name. A: Without knowing more, this could be a case of financial elder abuse, which often is not committed by strangers, but by close relatives. I asked Ilyce Glink, a real estate columnist and author of "100 Questions Every First-Time Home Buyer Should Ask," to help answer this question. If you want to find out who owns the property, go online to the local recorder of deeds and look up the property by the address, Glink says. It could just be that the mother doesn't recall that she wanted her daughter to inherit the property by adding her to the title. "Parents make that mistake all the time because they don't realize that by avoiding probate, they are just setting their children up for a big tax bill," Glink said. Glink says to try to get some answers yourself. What papers does the elderly mother think her adult daughter had her sign? Are they power of attorney papers for financial matters as well as for health care? Can you ask the daughter how she is making decisions and what authority she has? Is the mother expressing concerns over her care and/or her financial matters? Glink suggests approaching the daughter gently to inquire about how mom's finances and health are being handled, and offer to help if needed. If you get shut down and suspect there's fraud, call the Justice Department's National Elder Fraud Hotline, 1-833-372-8311. Case managers can help you assess the situation and will make referrals to the appropriate reporting agencies. There's also the National Center on Elder Abuse, where you can find information on spotting the red flags of financial exploitation. Here's some reading I recommend: Elder abuse happens more than you think. How to spot the signs. 5 Ways to Prevent Elder Financial Exploitation Spotting elder financial abuse In Retirement News Part of planning for retirement and then living on the money you've saved or invested is keeping up with the issues that you need to know. In this section, I feature blogs, news stories, new research, surveys and government policy changes that could affect your retirement. If you see a news story or issue you think would help folks, let me know, and I'll check it out and share it with newsletter subscribers. Medicare's open enrollment started on Oct. 15 and ends on Dec. 7. There is so much misinformation that it leaves a lot of people confused about the process and their options. Even if you're happy with what you have, review your current Medicare coverage and take note of any upcoming changes to your costs or benefits. Here's some recent reporting on open enrollment season that you should read if you qualify for Medicare. Beware of misleading sales tactics, scams during Medicare's open enrollment Medicare Advantage plans are an option this sign-up season, but make sure they fit your needs Medicare enrollment blitz doesn't include options to move into Medigap The Truth About Those Medicare Advantage TV Commercials Retirement Rants and Raves This is also your space to rant or rave about anything related to retirement. Send your comments to colorofmoney@washpost.com. Please include your name, city and state. In the subject line, put "Retirement Rants and Raves." Responses may be edited for clarity. One reader from Albuquerque wanted to rave about the decision to get an annuity. "I was 64 when my husband died," she wrote. "I sold our home the next year and got advice about how to allocate the proceeds. I chose an annuity that with my Social Security would provide monthly income for my expected living expenses. I then determined how much I could spend on a smaller home, and still have enough to put a modest amount into mutual funds, which I always thought of as my roof replacement fund. Now at 84 I own my townhouse, have lived comfortably for 20 years, and a new roof would be no problem. I also maintain a savings account for special wants or emergencies. The annuity will continue till I die. It has been wonderful to have the security of a consistent income." If you're thinking of an annuity, read this: This investment guarantees monthly checks for the rest of your life. But there's a downside. | 
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