In strategically planning retirement here are 4 common questions and answers to help you begin to think about what the best plan for you will be.
1. Will Social Security alone cover me during retirement?
Social Security is only designed to replace about 40% of your pre-retirement income. Most people need 70% to 80% of their pre-retirement income once they start working. Depending on what your plans for retirement are these percentages can be adjusted. By keeping costs down and limiting extra-curricular activities the chances of social security benefits covering your living expenses are more likely.
2. What kind of taxes should I plan on paying during retirement?
Any income you withdraw from a 401(k) or traditional IRA is taxable as ordinary income (Income from a Roth IRA, however, is not taxable). Income you withdraw from a pension plan is also taxable, as are capital gains from a traditional, non-tax-advantaged brokerage account. And while some people are not required to pay taxes on Social Security, those with additional sources of income are often taxed on their monthly benefits.
3. How much will healthcare cost in retirement?
Retirement can average 20 years or longer. Fidelity reports that the average 65-year-old couple retiring today can expect to spend $245,000 on healthcare during the golden years. Medicare health care coverage begins at age 65, but, on average, it will only cover about 50% of your total health care expenses in retirement. Medical expenses can vary widely by geographic location, but on average, expect to spend about $5,000 – $10,000 per year per person.
4. What’s the best age to retire?
Age 59 1/2 is the earliest eligible age to take penalty-free withdrawals from your 401(k) or IRA. At age 62, is the earliest age for collecting Social Security benefits. And age 65, is when we begin reaping certain benefits, from Medicare to a host of discounts. Following that, 66 is considered Social Security’s full retirement age for those born in 1954 or earlier, while 67 is the full retirement age for anyone born in 1960 or later. (Those born after 1954 and before 1960 fall somewhere between 66 and 67.) Most 65-year-olds can expect to live into their 80s, while over 20 percent of men and 30 percent of women will live into their 90s. With that in mind – planning for retirement early and working longer will reap the greatest financial benefit for retirees.
Someday it will happen. Someday you will clock-in for the last time and will no longer be a slave to someone else’s schedule. You will have a big celebration and tell great stories about days gone by. Then you will have the opportunity to do whatever you desire – if you have strategically planned for it. Begin thinking about what you would do if you could do whatever you wanted. Maybe you’d travel. Maybe you’d volunteer. Maybe you’d go on a mission trip. Maybe you’d play golf every single day. Whatever it is, whatever your heart desires can become a reality if you make a strategic plan, ask yourself some tough questions, give yourself some options, and dream big.
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