You have your retirement planned — golfing, long walks, extra time to cook — but you may not have the full financial payout structure planned. Even if you do, how can you be sure it will fit your lifestyle without testing it? Retirement planning involves some of the biggest financial decisions you'll make over your lifetime. We offer several ways to stress test your retirement — including calculatemyretirement.com/tool — to make sure it really will serve your needs in the future.
Most people generally spend 20 to 30 years in retirement, so you'll want to make sure you have a retirement plan that will allow you to live comfortably. The steps you take today could have a profound impact on the kind of life you have in retirement. Here are some questions to ask yourself about your retirement plan.
How do you envision your retirement?
Whether you're planning to travel or kick back by a lake, your income will need to support your lifestyle. Do you see yourself living near your children? Do you want to go back to school? Make a list of everything you're dreaming for the future. Once you decide how you want to spend your retirement, you can map out a strategy that can help get you there.
What is your current financial situation?
Are you comfortable where you are financially? Take a realistic look at how much you've saved, the debt you owe, the life insurance you own and what you have saved in emergency funds. After evaluating these items you'll have a better sense of your financial situation.
Are you saving enough for retirement?
Here's a retirement calculator you can use to assess your retirement plan. If you find you're not saving enough, one way to build your savings is to increase your retirement contributions each year. If you're age 50 plus, you can take advantage of catch-up contributions that will allow you to save more.
How much and what kind of debt do you have?
Before you retire, you'll want to eliminate as much debt as possible. It's a good idea to pay off high-interest debt, such as credit cards. You may also want to consider paying off your mortgage before you retire.
Have you thought about building a retirement budget?
Start by making a list of your basic living expenses, including housing, food, taxes and insurance. Don't forget to account for health-related expenses and any other miscellaneous costs, such as travel and entertainment.
Will your income last?
Once you've got your budget figured out, it's time to determine if you will have enough income during retirement. A good rule of thumb is that you'll likely need 70% to 80% of your annual pre-retirement income to maintain your standard of living. The amount might vary depending on where you live, your health and your lifestyle.
How can you boost your retirement income?
There are several ways to enhance your retirement income and strengthen your retirement plan. You could consider working longer and saving more. You could also work part-time after retiring from your full-time job.
What's your Social Security strategy?
Social Security typically replaces about 40% of your income. A key decision you'll need to make as you approach retirement is when to claim Social Security benefits. You can start receiving your retirement benefits at any point from age 62 up to age 70, but your benefits will be higher the longer you delay.
Have you thought about how you'll pay for healthcare in retirement?
Healthcare can be one of the biggest expenses a person faces in retirement. Generally, a retiree will spend a considerable amount of money on healthcare expenses during retirement.
Is your retirement plan up to date?
Review your retirement plan at least annually to make sure that it still works for you. Stress test your retirement plan using this retirement calculator to help you prepare.