As one commercial relates, planning for retirement is no easy task so it should not be surprising that some people just don’t plan, hoping somehow things will just work out.
Need I tell you that no plan is, in fact, a terrible plan? It is hard to believe that just 38% of Americans claim to have formulated a retirement plan; why not overcome the angst you likely feel by answering three basic questions.
When to claim Social Security. Many people think incorrectly that retirement and claiming Social Security benefits occur at the same time. Not necessary; after all, you can voluntarily retire at age 60 but that still means you have to wait to claim your benefits. Add to the equation the fact that the amount of money you get in benefits is linked to the age at which you start claiming them. Age 62 is the earliest you can claim Social Security. However, if you do, your benefits will be reduced by up to 30% of what they could be. For every month you wait, you’ll receive slightly more until you max out the benefit at age 70. Your full retirement age (FRA) is the age when you’ll get 100% of the benefits to which you’re entitled. Waiting can have its advantages, but there’s no single right answer for when you should start claiming. It all depends on your personal circumstances.
Here’s a Question: Will your retirement savings last? It’s important to know how far your savings will go during retirement. To make that determination, calculate the amount you’ll need each year of retirement your will need to support your lifestyle. With that number in mind, you should be able to better determine how long your current savings will last. You might realize that you need more than you anticipated, allowing you to adjust the budget.
Paying for healthcare costs. Wow, this is an impossible dream that not even the federal government has a handle on! Know that the average retiree spends about $4,300 per year on out-of-pocket healthcare expenses. A total of two-thirds of that is spent on health insurance premiums or if you also carry long-term care insurance adjust that number accordingly. It’s important to understand that Medicare will help cover many healthcare expenses you’ll face, but it doesn’t cover everything.
Life’s circumstances often dictate when people retire; they lose a job in their mid to late 60s or illness prevents them from working. However, even when that is the case, understanding where you are from a financial perspective can give you peace of mind and the budget you will need to make your retirement as worry-free as possible.
Reference: Motley Fool (October 9, 2018) “Don’t Even Think About Retiring Until You Can Answer These 3 Questions”
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