The average American plans to retire in their late 60s. If you’re within five to 10 years of your target retirement age, it’s important you take planning seriously.
There are key questions to ask yourself as you enter this milestone decade of life. Answering honestly will help you avoid costly mistakes and allow you to make any necessary changes to your retirement plan while you’re still earning an income.
Do I have enough money saved?
One of the biggest fears I hear from people approaching retirement is outliving their savings. A general rule of thumb is to have eight times your annual income saved by age 60, however, a financial adviser can help you refine that number and set savings goals unique to your situation.
Consider your lifestyle expectations in retirement when determining how much you need to save. While $1 million might be more than enough for some to retire and live the life they want, it might not be enough for others who plan to spend more in their golden years.
You’ll also want to determine exactly when you want to retire and how long you expect to live in retirement. It’s important to consider your current health and family history when predicting your life expectancy. It’s essential to budget for different scenarios, including unexpected health care expenses, to calculate whether you have enough saved or if you need to play catch-up.
Will my income fluctuate?
Yes, it most likely will, so you’ll need to be prepared for that. To tell how much of your income might be subject to fluctuations, first determine your income sources in retirement. These include 401(k)s, traditional and Roth IRAs, annuities and any savings or investment accounts. Then figure out what percentage of your retirement income will stay the same as you grow older, such as pensions or Social Security. Compare that to the income that may ebb and flow as you take money out of different retirement accounts.
For example, if most of your retirement money is in tax-deferred accounts, it’s possible your tax bracket will change over time. In turn, your nest egg could be impacted. Your retirement savings may also be impacted by stock market swings if you have money invested in the market. This is why it’s important to evaluate your portfolio and dial back on risk as you get older and closer to retirement.
When should I collect Social Security?
You can start collecting Social Security benefits as soon as you turn 62, but for many, it might be worth it to wait until full retirement age, which is 67 for those born in 1960 or later. If you decide to tap into Social Security before your full retirement age, your benefit could be permanently reduced by as much as 30%. If you can wait until age 70, you will receive 100% of your benefit plus an additional 32%.
Another way to increase your Social Security checks is by adding more high-earning years to your work record. Social Security is calculated based on the 35 years of your career where you earned the most money. If you work more than 35 years, you can drop your lowest earning years and receive a bigger benefit in the future.
It’s important to talk through claiming strategies with your financial adviser when you turn 60. Having a plan for your benefits and claiming at the right time typically means more money in your monthly check.
Is my family protected?
The financial strain of caring for a loved one is staggering. On average, family caregivers spend 20% of their income on caregiving costs. Long-term care insurance helps cover the costs of nursing home care and home health care. It can also help families pay for chronic medical conditions, like Alzheimer’s or dementia. If you are eligible and in good health, the best time to examine your long-term care options is between the ages of 60 and 65.
You also want to take a look at your estate plan as you enter your 60s. If you haven’t created an estate plan yet, meet with an estate planning attorney to get your documents in order. If you have a plan already, make sure your family knows who your attorney is and that they have copies of the legal documents they need. Review your will or trust to make sure your beneficiaries are updated.
These four important questions will help you create a retirement budget and income plan and ensure your family is taken care of. If you haven’t met with a financial adviser before your 60th birthday to put a comprehensive plan in place, gift yourself with a meeting and peace of mind as you enter a new decade.
Founder & CEO, Drake and Associates
Tony Drake is a CERTIFIED FINANCIAL PLANNER™and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.