1 Retirement Question You Should Answer Right Now

It’s hard to pinpoint an appropriate age for retirement when your heart says “leisure” but your brain screams “bills.” Experts warn early retirees that longer lifespans warrant retirement savings of at least $1 million. Others claim you can get by with much less. Finding out if you’re ready to retire isn’t as complicated as it seems and can be simplified depending on your answer to a few key retirement questions. The information you learn with these questions will help answer most important retirement question of all.

Are you on track to retire rich or struggle for years? Read on to find out, and then discover the 1 question too many future retirees aren’t prepared to answer (page 6).

Question #1

Investment And Saving Concept

Start investing early. | iStock/Getty Images

  • “How much are you investing and when did you start?”

Answering this question will put definitive numbers on your retirement savings. Whether retirement is 15 years away or three, you need to know if you’re even on track to afford retirement living. Ideally, you should be investing 15% of your income to retirement, but Vanguard data says very few Americans actually reach that goal. Depending on when you began investing, you may be forced to play catch up and it could take longer to hit your financial goal.

Also, what fees associated with your investments? Retirement accounts are long-term investments, so the amount you pay in fees will have a huge impact on what your account is ultimately worth. A 1% fee could cost tens of thousands in retirement savings over the course of a lifetime, according to NerdWallet.

Next: A timely question for hopeful retirees

Question #2

The sign "401k" is lined with gold letters on wooden planks

Know how much money you have in all of your accounts. | iStock.com/TimArbaev

  • “When do you plan to withdraw from your accounts?

Understanding at what age you want to start pulling money out of your accounts will help determine if you’ve saved up enough to retire. For instance, if you begin withdrawing 4% from your 401(k) at age 65, how long will your account last until it’s drained? Would waiting to withdraw until a later date award you more time to contribute additional funds? Construct a withdrawal timeline to create an accurate retirement picture and help pinpoint a few dates you can work toward.

Next: Why you must have a plan for Social Security

Question #3

man holding social security card in his hand

Know when you’re going to claim Social Security. | KenTannenbaum/iStock/Getty Images

  • “When will I apply for Social Security?”

You’ll want to include potential Social Security benefits when preparing for retirement. But to get the most accurate statement, you must decide when you’ll take these benefits. Advice is mixed about whether you should delay Social Security until age 70 or apply for benefits sooner. Consider your health, your savings, and your retirement budget when answering this question.

Waiting longer allows you to collect a higher monthly benefit without any benefit reductions, but claiming earlier helps pad your bank account if money gets tight. Waiting until full retirement age (67 for those born in 1960 or later) will produce a benefit 30% higher than if you were to take benefits at 62. You can pocket an additional 32% if you wait until age 70.

Next: The best way to calculate spending in retirement

Question #4

Man doing taxes

It’s important to create a realistic budget. | Getty Images

  • “What are my projected expenses in retirement?

It’s important to determine expenses during retirement and how they will affect your lifestyle. This could be things such as credit card debt, monthly utility bills, groceries, alimony, car payments, and vacations. Don’t forget that some seniors with sizable prescription drug costs could spend more than $350,000 on medical care during retirement.

Construct a monthly budget that coincides with the lifestyle you plan to keep using a retirement expense worksheet. Then, write that number down. You’ll need this, and the next number, to answer the most important retirement question.

Next: How to determine your retirement income

Question #5

concept of Planning for retirement

You need to know your savings and retirement income. | jerry2313/iStock/Getty Images

  • What is your retirement income?

Calculating your expected budget is only half the equation. You also need to know how much money you’ll have coming in overall. When calculating your income, you must account for all sources such as:

  • 401(k)s, IRAs, and other funds: Assets that typically serve as your primary source of retirement income.
  • Social security: The average Social Security income for all retired workers in 2018 will be $1,404.
  • Pensions: The median private pension benefit was $9,262 per year in 2016 and $17,576 for local government pension benefits. However, many U.S. pensions are vastly underfunded.
  • Employment: The average income earned by retirees from work is $25,000 per year.

Add up all sources of income and write your number down. You’ll also use it to answer the most important retirement question, next.

Next: The one retirement question you should answer right now

Retirement must-do: Compare income to spending

A woman holds her shopping list with her teeth

In retirement, it’s important to spend less than you’re bringing in. | JEAN-FRANCOIS MONIER/AFP/Getty Images

  • How does my retirement income compare to my spending?

The most important thing you can do before you retire is to determine whether you can afford it. One rule of thumb is to assume you’ll spend 70% of the income you earned while working, but you should consider miscellaneous expenses such as a mortgage, higher-than-average medical bills, or your passion for globetrotting.

When comparing your retirement income to spending, is there a gap? Your answers to the five questions above will help determine your retirement readiness based on affordability. You can get a better picture of your finances by using one of these eight best retirement calculators we rated and compiled into one list.

If this question suggests you are falling behind the curve, here are some ways to earn additional retirement income, fast.

Next: How to play retirement catch-up

If you’re low, consider playing catch-up

piggy bank with dollars

If you’re lagging on your retirement savings, you should play catch up.  | iStock/Getty Images

If you are behind on retirement savings, you can still maximize contributions each year. For 2018, you’re can contribute a maximum of $18,500 to a 401(k). If you’re age 50 or older you can throw in an additional catch-up contribution of $6,000. An additional Roth IRA offers a great way to save and grow money on a tax-deferred basis. Lastly, you must also practice on living less while you save more. This switch from “spender” to “saver” will serve you well come retirement.

Next: You’re in the clear. Consider boosting income as much as possible.

If you’re on track, consider boosting income

wallet full of money

The last thing you want to do is run out of money in retirement. | iStock/Getty Images

Unexpected retirement expenses can put a serious damper on life if they become unaffordable. Those who are on track to retire well should still consider boosting income with retirement investment strategies that continue to put the most money back in your pocket. These are decisions such as choosing funds with lower fees, contributing additional money to an IRA and letting it grow tax-free, or rebalancing your portfolio yearly to ensure your maximizing savings to the best of your ability.

Follow Lauren on Twitter @la_hamer.

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