Retirement takes planning. A lot of it! And, no matter how much you plan, retiring is still a significant life transition. The truth is that knowing when you’re “ready” to retire is different for everyone. And, you never honestly may know when you’re “ready”!
To help ease your worries, we’ve helped compile answers to 5 of the most common questions that arise regarding retirement. You can feel confident about your readiness for retirement if you can answer these questions.
What Is The Appropriate Retirement Age?
There are a few factors that impact your ideal retirement age. But before we dive into those, let’s first examine how the retirement age is defined.
The Social Security Administration defines “normal retirement age” as when you can receive your full social security benefits. But it’s also possible to collect early.
If you’re unsure when to begin collecting Social Security, you’re in luck! This blog post is dedicated to determining when you should begin collecting your social security benefits. You can check it out here!
Deciding when to collect Social Security is important because it’s a significant part of planning your retirement income strategy. If you need your Social Security benefits to begin paying for expenses immediately, that impacts when you should begin taking your benefits.
The other age you need to know is when to apply for Medicare. Generally, people 65 and older fit the qualifying age. But, you may be able to get Medicare earlier if you have a disability.
Why is this important? Healthcare is one of a retiree’s most significant costs. If you don’t have affordable health insurance until you turn 65, that can majorly influence the age at which you should retire. But more to come on that later!
How Much Savings Do I Need to Retire?
Unfortunately, there’s no magic number for how much retirement savings you should have. But, there are guidelines for determining how much you should have based on your retirement goals.
First, ask yourself what your ideal retirement looks like. Are you moving to a new area? Downsizing your home? Traveling the world? How you’ll spend your time, of course, significantly impacts how much money you’ll need to make it happen.
Second, what are your current expenses? Think of your expenses, including your mortgage, insurance premiums, car payments, credit card payments, utilities, food, personal spending, etc. Will any of these expenses change once you retire? Or will you have to make some lifestyle changes?
What Will Be My Primary Source of Income During Retirement?
It’s no surprise that adjusting from receiving a paycheck every two weeks to not at all is jarring. To help bridge the gap, you’ll need to establish a draw-down strategy based on your retirement plans and needs.
Draw-down strategies decide how much money you’ll take from your retirement savings accounts and when. This can include withdrawing your Social Security benefits, funds from an IRA or 401k, etc.
Everyone’s strategy will look slightly different based on your available resources, spending needs, tax obligations, and more. If done right, an effective withdrawal strategy can increase the longevity of your retirement assets.
If you’re in good health, working past retirement age may be a good idea. Even a part-time job can increase your nest egg’s longevity by delaying your need to withdraw your social security or pension income and allowing you to continue saving money through tax-advantaged vehicles.
How Will I Meet My Healthcare Needs?
We briefly touched on how healthcare is one of the biggest expense for retirees. So how do you make sure you have everything covered?
An important thing to note is that people are living longer than ever before. So, be sure to plan for longevity! Look closely at your current health and family history and do your best to come up with a reasonable estimate of your life expectancy.
First, take inventory of what you have available regarding healthcare savings. For example, if you have an HSA (health savings account), account for those assets.
Second, do you have or will you want to sign up for Long-Term Care (LTC) insurance? Most retirees will need long-term care at some point, and it can get expensive quickly. Long-term care insurance isn’t suitable for everyone, so be sure to talk to your financial advisor to determine if it’s the right move for you.
Medicare doesn’t cover everything (including long-term care costs), so it’s essential to plan to have some of your retirement savings reserved for healthcare costs.
How Will I Handle Estate and Legacy Planning?
A comprehensive estate and legacy plan is essential for every retiree, regardless of your finances. Formal documentation can ensure that your assets, memories, and legacy are all carried out and transferred in the ways you intend them to be.
A best practice is to work with a qualified estate planning attorney to draw up your personalized plan. They can work collaboratively with your financial advisor and help you with wills, trusts, beneficiaries, powers of attorney, medical directives, estate executors, etc.
If you already have an estate plan in place, take the time to review it and make sure your wishes have stayed the same. If needed, this is a great time to update any beneficiaries, alter medical directives, reallocate assets, etc.
Everyone’s path to retirement is different, so you should have a customized plan designed specifically for you and your retirement goals. If you have questions about retirement readiness, drawn-down strategies, estate planning, or anything else, please contact me today.
Craig Toberman is the Founder of Toberman Wealth – a fee-only, fiduciary financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.
Craig received a Bachelor of Science (B.S.) degree in Agricultural and Consumer Economics from the University of Illinois and a Master of Business Administration (M.B.A.) degree in Finance from Saint Louis University. He is a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) charterholder, and Certified Public Accountant (CPA).
Craig is a member of the National Association of Personal Financial Advisors (NAPFA), Fee-Only Network, and XY Planning Network.
Craig lives in the greater St. Louis area with his wife, Ally and son, Hank.