Most of us dream of a comfortable retirement. We see ourselves lying on the beach with a drink in our hand and the cool breeze massaging our toes. Or maybe you haven’t saved much money, so you see yourself working longer than you expected and struggling to get by. If you want to live a comfortable retirement lifestyle, you’ll need to put in a bit of effort now. And that involves delaying gratification and squirreling away as much cash as possible.
Know you can achieve your retirement dreams. In addition to discipline, you’ll need to do some number-crunching to prepare. For example, do you know how much money you’ll need to retire comfortably? How much will you need to set aside for emergencies? If you have no idea where to start, have no worries. The Cheat Sheet is here to break down what you need to keep in mind as you plan for your golden years. Let’s take a closer look at 10 retirement numbers you must know to retire successfully.
1. Future retirement expenses
Before you can start working on your retirement plan, you’ll need to have an idea of what your monthly expenses will be. One way to do this is to map out your future expenses with a retirement-expense worksheet. You can access a worksheet online through sites, such as Vanguard and Fidelity. You’ll be asked to plug in financial information, such as the monthly cost of your mortgage, utilities, transportation, and groceries.
Next: How much will you actually be making?
2. Retirement income
Once you calculate your future expenses, you’ll also need to know what your anticipated income will be. Don’t forget to take into account Social Security, inflation, and estimated retirement savings. You can use a retirement-income worksheet or calculator to help you get a better idea of what your retirement income will be. Download tools from sites, such as Bankrate and Vanguard, to help you get started.
Next: This expense could total $260,000 in retirement.
3. The cost of health care
The average cost of health care during retirement for a 65-year-old couple who retired in 2016, according to Fidelity estimates, is $260,000. This is 6% higher than the year before. One expense pre-retirees often forget about is health care, but it’s often one of the biggest costs during retirement. Deductibles, copays, and out-of-pocket medical costs add up quickly, so make sure you’re prepared.
Next: This could cost a couple $130,000 in retirement.
4. The cost of long-term care
If you haven’t thought about long-term care expenses, you might want to add this item to your retirement to-do list. Fidelity estimates a 65-year-old couple will spend roughly $130,000 for long-term care during their retirement years. This is based on the assumption that the couple is in good health and purchases a policy with an $8,000 monthly maximum benefit, with three years of benefits, and an inflation adjustment of 3% per year.
Next: When can you access your money?
5. When you can make withdrawals
Age 59.5 is generally when you can start making withdrawals from an IRA or a 401(k) without incurring a 10% penalty. However, there are a few exceptions like leaving your job at age 55 and retiring.
Remember you’ll still need to pay income tax on the amount you withdraw. If you have a Roth IRA or a Roth 401(k), however, you’ll be able to make tax-free withdrawals because the contributions are made after tax, unlike a traditional IRA or a traditional 401(k), which requires pre-tax contributions.
6. The average retirement age
If your plan is to work until you die, things might not work out the way you expect. The average retirement age, according to LIMRA Secure Retirement Institute, is 63. And by the time many Americans reach age 75, 89% have exited the work force. Your chances of being physically unable to work at some point in your life are higher than you might expect. Approximately 1 in 4 of today’s 20-year-olds will become disabled before they have a chance to retire, according to the U.S. Social Security Administration.
7. How much you need in an emergency fund
When mapping out future expenses, don’t forget to include your emergency fund. Just because you won’t be working anymore doesn’t mean you won’t need an emergency cash cushion. You’ll have emergencies for as long as you’re alive, so stay ready. The experts typically recommend socking away three to six months of expenses. However, the more you can save, the better.
8. The cost of recreational activities
Retirement often comes with a lot of free time. You likely won’t be working anymore, but that doesn’t mean you’re going to want to sit around your house all day. Think about how much time you’ll have free during retirement. Start planning now when it comes to the activities you’d like to engage in when you’re done reporting to work every day. For example, if you anticipate taking up golf or traveling around the world, you’ll need to figure this into your retirement budget, and start saving now for those extras.
9. Estimated tax payments
The tax man won’t leave you alone just because you’re retired. Depending on the type of retirement accounts you have, a tax bill will be coming your way, so get ready. Withdrawals from a traditional IRA and a traditional 401(k) will result in getting hit with income tax. So don’t forget to leave some room in your retirement budget for these payments.
10. Life insurance needs
Let’s face it. We’re all going to die one day. Death is probably not your favorite topic, but it’s important to stay abreast of life insurance needs. When you die, you want to make sure your loved ones are taken care of. Life insurance calculators are a great way to help you see whether you have enough coverage in the event of your demise. One good tool is the life insurance calculator by Life Happens.
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