When should you retire?

The Treasury Secretary explains MyRA: A 'starter' retirement account
The Treasury Secretary explains MyRA: A 'starter' retirement account

Figuring out the right time to retire is a very complicated notion. It can only be addressed in the broadest sense, as everyone has a different "ideal" time to retire. But at its core, I think choosing the best time for you to retire comes down to three simple steps.

1. Only retire once you have a plan for how you will spend your time and what will give you meaning.

2. Only retire when your financial expectations are in order and you have practiced living on your retirement budget.

3. Once these two are in place, retire ASAP!

That might sound overly simplistic, but let's unpack all three of these statements to make sense of them.

Get a plan in place

Before calling it quits, soon-to-be retirees think they'll miss their steady paycheck the most. But once they enter retirement, those same folks say that the loss of social contact, as well as the lack of a sense of purpose and mental stimulation, ends up being the greatest negative aspect.

For many of us, work provides us not only with income, but with a sense of self and connection to the community surrounding us. In retirement we may not need that income, but since human beings are social animals, the importance of our sense of self and social connections will remain the same.

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That helps explain why Wes Moss, radio host, author, and chief investment strategist at Capital Investment Advisors, thinks all retirees need at least three "core pursuits." By that, he means activities that offer a sense of purpose, and are engaging and intrinsically rewarding. Gardening, being a grandparent, coaching, mentoring, making art -- all of these could be considered core pursuits.

In his research, Moss has found that happy retirees have an average of 3.6 core pursuits before entering retirement, while those who are unhappy have less than two. Indeed, if you don't have such interests, what's your motivation for retiring in the first place?

Practice your finances

We humans are remarkably adaptable. That's a good thing. It means that even though the vast majority of retirees haven't saved up enough to replace their income -- even when supplemented with Social Security -- they still enjoy record levels of happiness, contentment, and relaxation, as well as record low levels of stress.

But the adjustment process itself can be a bit jarring. One of the best ways to see if you have your financial expectations firmly grounded is to practice living on your retirement budget before calling it quits. Keep in mind while doing this that you'll likely be driving less in retirement (not commuting), and you shouldn't count any money you're putting away for retirement against you, either.

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Also make sure that you talk with your financial advisor to decide on the best time to file for Social Security benefits, how to plan for such benefits with your spouse, the role that Medicare will play, and the appropriate level to draw down from your nest egg every year.

By doing this, you can spot problem areas while you still have time to fix them. You can also begin the process of adjusting to what your level of creature comforts will be for the next couple of decades.

Retire as soon as possible?

I'm not a big fan of the word "retirement." For too many people, this means "not doing anything that you'd normally get paid for." That's a pretty limiting outlook, as there are lots of things people like to do regardless of whether they get paid. Instead, I prefer the term "financial independence": This means that you get to pursue what matters most to you, but you get to do it on your terms, and at your own pace.

Related: Can I retire early?

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Able to retire at 40? Awesome. Go for it. Every shred of evidence says that you'll be better off for it -- so long as you have the two aforementioned steps in place.

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