How long should I wait to retire?

How are you supposed to know when the time is right to stop working?

A retiree relaxing in the pool and giving a thumbs up.

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Many Aussies would choose to retire tomorrow if they won the lottery. But for those of us putting in the hard work year after year, when is the right time to slow down?

Everyone deserves to enjoy the fruits of a lifetime of work, saving and investing. After all, we can't spend the money when we're gone.

Australians are generally in a good place when it comes to saving for retirement. This is due to our excellent superannuation system, which mandates retirement contributions for employees and encourages saving for wealthier individuals.

If I were weighing up when to retire, there are four things I'd want to consider.

Large enough nest egg?

It would be unwise to retire before our finances can support our needs for the rest of our lives.

Each person has a different view of what their spending may look like in retirement.

A person in Sydney may need more than $100,000 per year if they don't own and live in their own home, if they want to go on regular holidays, and so on. Whereas someone in regional Australia may be able to get by on a lot less with simple living.

I believe a share portfolio with a minimum of $1 million would be required to retire (early) if you don't have other forms of income. Generating a 5% yield from the portfolio would make $50,000 of cash flow (before considering taxes), which doesn't go as far as it used to.

A licensed financial planner can help people figure out a personalised plan to factor in things like spending intentions and how long the assets need to last. Someone retiring at 45 could need the money to last 40 or 50 years.

Older Aussies can receive financial assistance if they are eligible for it, such as the age pension and rental assistance, so they may not need as much capital to retire.

Emergency fund

I believe every adult Australian should have an emergency fund. Workers can lose their main source of income, and businesses can experience a downturn. The COVID-19 period and the GFC showed how dramatically the economy can change for the worse.

For people considering retirement, I suggest saving at least six months' worth of spending in cash in an accessible online savings account. A year, or even two years, of saved spending could be prudent.

You don't want to have to sell assets at beaten-down prices during a bear market. It would be better to call upon existing cash reserves.

Healthy and happy

Some jobs may be more stressful, unfulfilling or physically taxing than others. We're only on this planet for so long, so if we have a choice to leave that stress behind, it could significantly increase our happiness and relaxation.

I'm not an expert on health – this is an ASX share website, after all. But health and happiness may be the best investments of all. Having more money won't help buy back the time we could have spent with friends or family.

Consider continuing some form of work or volunteering

Taking it easy doesn't necessarily mean we have to stop doing everything that has a goal or purpose.

We can decide to work less in the same industry if we like the job, choose another sector that is more enjoyable, or even volunteer in local communities. Having a routine can help in a number of ways.

If we do keep working in some way, this can bring in some income and mean we don't need as much of an ASX share investment balance to retire sustainably.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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