Retirement planning is scary. The amount of apprehension and stress retirement can cause, is exponential. According to BlackRock CEO Larry Fink, this fear is the greatest problem in our country.
People fear retirement because it represents one of the largest unknowns in life. With this in mind, your company can rely on a few strategies to remove this unknown.
Arguably the best strategy is to educate your employees. Retirement education is vital for proper financial wellness and retirement planning.
The more an individual understands about their retirement, the less they have to question. And the less you have to question, the less you have to be scared.
These 11 questions will help you prepare for retirement, and all the twists and turns it can throw your way.
1. What kind of lifestyle do I want?
One of the first questions needed to determine how much money you will need; is what kind of lifestyle you want to lead. You may choose to cut back, or you might increase your spending.
Either way, it’s important to set an expectation for how you are going to live out your retirement. If you plan on being more active, to fill up all of your free time, it will be vital that you save enough to meet your needs.
Many people, for example, have multiple travel destinations on their bucket list. If you are planning on doing a lot of long-distance travel, it will cost you.
2. Do I want my life to be structured or spontaneous?
One of the biggest possible benefits of retirement, for many people, is not a set schedule every day. Still, for many individuals, the more structured life is, the less money they tend to spend.
Think about what structure in your life you have now. A budget is a terrific example of a certain amount of structure. Having a budget is also an example of how structure in your life helps you save money.
Without an accurate budget, you are likely to spend more money than you should. So, even if you want to live more spontaneously in retirement, a little structure can still help.
3. What will my retirement expenses be?
Similar to the first two questions, this third question is aimed at predicting what you will spend once retired. Most people can expect to spend around 85 cents in retirement for every $1 they spent before.
Still, multiple factors that can tip this scale in either direction. Healthcare costs and changes in lifestyle are examples of these factors.
For example, if your health worsens after retirement you could end up spending much more than you’re accustomed to spending.
Of course, it is impossible to calculate exactly how much money you will need. Nevertheless, it is important to at least attempt to predict how these factors will affect you.
4. How much debt do I have?
No matter where you are in life, if you are planning for retirement, you must know how much total debt you have accumulated or will have accumulated when you retire.
The more debt you have, the more retirement income you will need. Likewise, as you are deciding when to retire, you’ll need to figure out when you will be able to pay off your existing debts.
When paying off your debts, there are a few simple rules to keep in mind. The first is that you should settle your high-interest, non-tax-deductible debts first. This type of debt, such as credit card balances, is the worst kind of debt to have.
The second rule is to refinance any high-interest, tax-deductible debts you have, like a mortgage. Refinancing helps you get the lowest interest rate possible.
5. Do I want to move?
If you want to move after retirement, it is important to account for how a move will impact your cost of living. If you move to downsize but choose an area with a higher cost of real estate, your overall cost of living is likely to increase.
Most people stay in their current home into their retirement. So, it’s important to weigh the costs of staying in place. These costs include more than just your mortgage or rent expense.
For example, a common desire for retirees is to spend more time with their children/grandchildren. If you currently live a long distance away from your family, it could be expensive to visit them regularly.
In this scenario, moving closer to your family would represent another cost saving. The closer you are to the people you want to see often, the less money you have to spend on travel expenses.
6. What about my healthcare?
Your healthcare is a vital, yet often overlooked, component to retirement. As we age, we tend to use greater and greater amounts of healthcare.
It’s important for you to attempt to estimate the future cost of your healthcare, and where you will get your coverage. A crucial part of the whole retirement “thing” is that you get to stop working.
If you aren’t working, you likely won’t have an employer to provide you with an easy option for health insurance.
According to a 2015 Kaiser Foundation survey, only 23 percent of large firms that offered health benefits, also offered retiree health benefits. After you turn 65, you can always enroll in Medicaid. But Medicaid is not free.
The price of Medicaid, or other types of insurance if you retire before 65, is a significant factor to consider. In total, a couple who are both 65 and retired in 2016, will need an estimated $260,000 to cover their health care costs, according to Fidelity.
This number is a good place to start when planning your retirement. Factors such as gender, marital status, health history, and health risks will all contribute to whether you should increase or decrease this number for your planning.
7. What will my taxes be?
Brace yourself for impact. Taxes do NOT go away once you retire. As long as there’s breathe in your lungs, Uncle Sam will come knocking in April. Your tax bill can eat up a significant portion of your retirement income.
Up to 85 percent of your Social Security check may be taxable if you have other sources of revenue. Similarly, withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income.
Make sure you are accounting for these taxes when you begin to withdraw money from your retirement accounts. For example, if you need $4,000 to cover your expenses, you may need to actually withdrawal $5,000 to cover your taxes.
8. How long will I live?
Nobody likes to talk about their imminent demise, but it’s a major component of your retirement. Now, unless your crystal ball skills are honed, it’s impossible to perfectly predict how long you will live.
But there are still multiple methods to generate a relatively accurate estimation. The easiest is to use the average life expectancy of your given Country/State/City. According to the CDC, the average life expectancy in the U.S is 78.8 years.
Another method is to use a life expectancy calculator. There are many of these calculators on the internet. The Social Security Administration, for example, has a plain version, but there are much more advanced calculators available.
Just remember, when calculating your life expectancy, and how much money you will need, you won’t have a money problem if you live less. So, when planning your retirement, it’s usually better to air on the side of caution, and longevity.
9. What are my sources of retirement income?
Knowing what your retirement income will be, is just as important to know as your expenses. Between 401(k)s, annuities, pensions, IRAs, real estate, and business ventures there are a plethora of possible income streams for you to track.
For those with little saved in their designated retirement account, these options can represent hope. While it’s important to save as much as you can, other options like real estate or a business can serve as a path to a comfortable retirement.
10. How much will I get from Social Security?
Another income stream, not mentioned above, is social security. While social security is the primary source of income for a majority of Americans, it shouldn’t be.
Remember: social security was never intended to be your primary source of retirement income. Still, your social security checks can be a nice way to supplement your income. The maximum benefit you can receive in 2017 is $2,687 a month.
But a majority of people do not receive this maximum. The overall average monthly benefit is only $1, 342 a month. As you can see, there is a large range of possibilities. Again, there are several online calculators at your disposal.
11. How long will I work?
The final question you need to ask yourself is how long you are planning on working. Keep in mind that half of the U.S. workforce retires before they expect to. And of those individuals, 60 percent leave work due to health or durability issues.
You may have a planned retirement age but it may not be feasible for you to get to that goal once you near it. Setting a more conservative retirement date for yourself, gives you more of a cushion in case you have to retire earlier than you’d prefer.
The Wrap
No matter when, where, or how you choose to retire, make sure you have all the necessary information. As you engage in retirement planning, use these 11 questions to check yourself before you (financially) wreck yourself.