A Gallup Poll in 2016 reported that nearly two-thirds of Americans worried they did not have enough money for retirement. With other polls showing the retirement age is rising and more data showing Americans should expect to retire even later in life than previous generations, what effect does that have on your future plans?
Check Your Savings and Create a Budget
It seems to be an obvious first question: Do you have enough money socked away in savings? A majority of pre-retirees probably dont have enough in savings if they wanted to quit working tomorrow. Life expectancies are growing, yes, but many Americans simply dont save enough of their income to begin with. Savings should be at least 10 percent, if not more. For whatever reason, and its not always for reasons we can control, people tend to save less. How do you know if youve saved enough? And what can you do to maintain a proper income stream?
A percentage-based rule suggests you wont run out of money if you withdraw 4 percent of your savings the first year of retirement. But in todays low-rate market, 4 percent may be too much. However, if you can take out less, perhaps 2 ½ to 3 percent, you will have a larger nest egg for the rest of your retirement years.
Starting at age 70 ½, you utilize those IRS Required Minimum Distribution worksheets, which specify the amount of money you must withdraw from retirement accounts that are sheltered from taxes.The Center for Retirement Research at Boston College tweaked the formula to begin at age 65.The CRR recommends this method instead of a percentage-based rule, because it is more responsive to the volatilities of the market.
How to Keep Money Coming In
Just because you have stopped working, it doesnt mean your money has to stop working for you. Shopping for annuities could provide paths to developing dedicated income streams during retirement years. The keys include: picking the right insurance provider, being mindful of fees, understanding industry jargon and rules and accounting for inflation.
Keep taxes in mind. Money that is withdrawn from retirement accounts, aside from money saved in a Roth 401(k) or Roth IRA, will be subject to income taxes.
When (and if) You Should Claim Social Security
Anyone who has paid into Social Security can claim benefits. Key questions here begin with your retirement age. You are eligible to begin receiving benefits as early as age 62 — or as late as age 70. There are advantages and disadvantages to receiving benefits before your full retirement age. The advantage is collecting benefits for a longer period of time. The disadvantage is your benefits are reduced. Find out if your Social Security benefits will be high enough to be taxed. Do your homework with SSC.
What is Your Healthcare Situation?
You become eligible for Medicare at age 65, but you also should expect to incur some out-of-pocket costs that wont be covered by insurance, details such as premiums, deductibles, co-insurance, certain hospital stays, certain prescription drug costs or supplemental insurance. For example, dental insurance is not covered by original Medicare, and most retirees primary plans dont include supplemental dental. The same goes for eyeglasses and hearing aids. Even with the contemporary changes in the healthcare industry, its nothing to freak out about, yet anyway.
Find the Right State
Some states are better than others for retirees. Bankrate lists Wyoming is No.1 with six factors: cost of living, taxes, quality of health care, weather and crime, along with the happiness and well-being of residents. Florida, conversely, might not be what its been cracked up to be for retirees.
What Will You Do in Your Retirement?
Are you sure you really want to retire? For many, ones career provides a sense of place and purpose. Some enjoy work and will want to find another activity that feeds the same passion. Of course, having enough income should be a chief concern for anyone at any point in life. One detail to consider when you retire is how will you spend that time, now that you are no longer working? A column in Reuters brings up some very good sub-questions:
- How will your sense of purpose change?
- Will you want to volunteer, or work part-time?
- How will you replace the feeling of fitting into the world?
It will benefit you to start considering the answers to these questions as early as possible. The longer you wait, the longer it would take to get answers you can live with in your retirement years.