Retirement may seem like a long time from now, but it’s closer than you think. Don’t keep putting off your plans to get your finances in order. A survey conducted by the Employment Benefit Research Institute found that American workers are falling behind when it comes to preparing for retirement. You can start the planning process by taking an inventory of your financial situation. Here are some important questions you must answer before you retire.
1. Do you really have enough money to retire?
Guessing won’t cut it when it comes to figuring out how much money you’ll need to live comfortably in retirement. It’s not a good idea to leave this part of retirement planning to chance, because it can be difficult to catch up once you realize you’re off track. Among the Americans surveyed in the Employment Benefit Research Institute study who said they are not saving enough, 20% said they plan to save more later, while 15% said they will have to work during retirement, and 14% said they have no choice but to delay retirement. Not knowing how much you need to retire means you’re not going to be saving enough in the meantime. If you don’t know the answer to this question, there are plenty of retirement tools available to help you figure this out. One tool recommended by the experts is the T. Rowe Price retirement income calculator.
If you come to the conclusion that you are indeed behind on retirement savings, you can still maximize contributions each year. For 2016, you’re allowed to contribute a maximum of $18,000 to a 401(k). If you’re age 50 or older you can make an additional catch-up contribution of $6,000.
2. How much debt do you have?
Take a moment to tally up all of your outstanding debt. Expenses such as high-interest credit cards and a mortgage will deplete your retirement income. Once you know how much you owe, make an effort to pay down as much of your debt as possible before you finally hang up your work hat. It will be tough to pay off debt once you’re retired and living on a fixed income, so take care of repayment sooner rather than later.
3. How will you pay for long-term care?
You may be feeling good and healthy as ever right now, but your chances of needing long-term care increase with age. Those turning 65 years old today have a 70% chance of needing some type of long-term care, according to LongTermCare.gov. In addition, roughly 20% of today’s 65-year-olds will need long-term care for more than five years. In light of these statistics, it would be in your best interest to have long-term care insurance.
4. When should you apply for social security?
It depends. Experts are divided about whether you should delay Social Security until you reach age 70. Those who say it’s a good move reason that waiting will allow you to collect a higher monthly benefit. Whether you choose to follow this advice depends on your individual situation. Some experts say if money is tight once you finally retire, you might want to apply for benefits sooner (age 62 is the earliest you can collect Social Security benefits) rather than later. Other experts say if you can afford to wait, and you’re in relatively good health, you may want to wait it out until age 70.
Waiting until your full retirement age (age 67 if you were born in 1960 or later) to take Social Security benefits will yield a benefit amount that’s roughly 30% higher than if you take benefits at 62. Waiting until 70 results in a benefit that’s roughly another 32% higher. On the other hand, if you’re not in such great health and you need the money, by all means apply for your benefits when you’re eligible.
5. Where will you live?
You’ll need to move to a place where you can stretch your retirement dollars. Retirement life will likely mean lower income and possibly higher health care costs. Do your research or you’ll end up blowing through your nest egg too quickly. Besides cost of living, you’ll also need to consider weather and convenience. As you age, driving may not be a possibility, so make sure to find a residence that will offer adequate mobility. While doing your research, you’ll want to make sure to stay away from these 10 worst retirement cities. Consider these 10 best places to retire instead.
6. What will your retirement expenses be?
Account for expenses such as the retirement lifestyle you would like to have as well as the cost of medical care. Remember that if you’re in poor health now, you will most likely spend a pretty penny during your golden years when it comes to health care costs. If you want to get a better picture of your future expenses, start by filling out a retirement expense worksheet like the one featured here on the Vanguard website.
7. Have you thought about your social life?
This may seem trivial, but once you stop working you’ll have contact with fewer people. If most of your friends and former co-workers are still working, they may have less time for you. They also may be more focused on work, so there may be fewer experiences to share. Make sure you’ve prepared for your social life after retirement. You can do this by planning to connect with a local senior center or volunteering within your community. Just make sure you plan to get out and socialize. A study by the Institute of Economic Affairs found that retirement can increase your clinical depression risk by 40%. This is because many workers closely link their identity and sense of purpose to their jobs.