Retirement-related anxiety is a common theme among Americans. According to GOBankingRates' 2019 retirement survey, 64 percent of the survey's 2,000 respondents expect to retire with less than $10,000 in savings. Moreover, almost half of all respondents said they had no money set aside for retirement.
These numbers are in stark contrast to the general retirement savings rule of thumb, which suggests you should save at least 15 percent of your annual income before taxes. However, this is just a guideline and might be different for you based on how you wish to live post-retirement. To craft a comprehensive retirement plan, be sure to ask the following five questions.
Will I Continue Working?
Not everybody chooses to completely retire. Rather, some might have to work part-time or pursue other ventures to supplement their income. Others might simply find they need something to occupy their time and maintain their physical and mental wellbeing. Retirement can be lonely, but working part-time at least allows you the opportunity to socialize. Naturally, if you plan to continue working in some capacity you might be able to adjust your savings goal and retire with less— and earlier—than originally anticipated.
Another option that many entertain is opening a business or consultancy practice in retirement. Self-employment in retirement can give you a sense of purpose and accomplishment and also has tax benefits, but the latter shouldn't be the only reason you create a company.
Where Will I Live?
Considering where to live is an important part of retirement planning. You might be perfectly comfortable in your current living situation for several more years or you may seek to downsize to cut costs. Regardless of your preference, you need to work this into your retirement plan. If you still have a mortgage on a home, perhaps you need to keep working part-time to help pay it off. Conversely, you can sell the home and settle into a more affordable condo or apartment. This might allow you to reach your savings goal quicker and retire earlier.
Moving to another state should also be something you at least consider. Many people choose to relocate to an area near their children or other family. In addition, some states are more financially beneficial for retirees. Wyoming, for instance, is one of seven states that doesn't have income tax. It was also ranked as the most tax-friendly state for retirees by Kiplinger. Retiring in Wyoming, then, will usually require less savings than doing so in New York or California. Also, more adventuresome retirees are considering and moving to foreign countries to retire, where the cost of living may be much lower than in the states. Costa Rica, Panama, Ecuador, and Belize are all popular locations for expat retirees at this time.
How Much Will I Need for Medical Expenses?
People are living longer, and your savings should reflect this fact. Similarly, it's common to have extra healthcare costs in retirement. On average, you should set aside at least $5,700 per year for health expenses. Married couples will spend around $11,400 per year. Moreover, Fidelity estimates that an average retired couple, both 65 years old, should have $295,000 saved specifically for healthcare expenses.
This money is just for out-of-pocket costs. Medicare only goes so far, so plan on having to fill in the gaps in coverage.
How Much Money Will I Spend in Retirement?
Knowing exactly how much you need to save for retirement also involves understanding how much you anticipate spending. Some might prefer a modest retirement with little changes to their lifestyle, while others might want to travel or fulfill life-long, expensive dreams. Even your hobbies can affect your budget. For example, many people take up or play more golf in retirement and that can be expensive, depending on how often you play. Public golf courses, on average, charge about $40, while some higher-end clubs can charge upwards of $500. Playing 100 times per year, then, can range from $4,000 to $50,000.
Rather than guess your annual expenses on vacation and recreation, consider meeting with a Certified Financial Planner. These professionals can factor in your spending habits, life expectancy, inflation, and other factors, to accurately gauge how much you should save for retirement.
When Should I Take Social Security?
Eligible Americans can receive supplemental retirement income through Social Security benefits beginning at 62 years old. However, if possible, you should consider delaying Social Security until 70 to receive as much as an 8 percent per year increase in payments. Those who expect to continue working should also look at delaying benefits until at least their full retirement age, which is either 66 or 67, depending on when you were born.
In 2019, people younger than full retirement age who claimed Social Security were taxed $1 for every $2 they earned above $17,640. If you start taking Social Security at 62, your monthly benefits will be permanently reduced by 25 percent.
Retirees can apply for Social Security benefits, when eligible, by visiting a local Social Security Administration (SSA) office. They can also complete an application online on the SSA website or call 1-800-772-1213.