Making Your Retirement Savings Last: Three Key Questions to Ask
Once you know what you’ll be doing in retirement, how to pay for it and how to bridge any income gaps, you’ll be prepared when it’s time to make the transition.
“Have I saved enough to transition into retirement?” To address this question, you must start by answering these three thought-provoking queries:
Question #1: How much will it cost to support the lifestyle you envision for your retirement?
Whether you want to travel, volunteer or spend quality time with your children and grandchildren, staying socially, physically and intellectually active makes for a more fulfilling retirement. Personally, I’d like to become a paid public speaker, visit my bucket list destinations and support a cause I care deeply about.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Once you know what you’d like to do, start figuring out the cost of living for that lifestyle. One classic rule for retirement preparation states that you should retire on 80% of the income you earned in your last year of work, while others may argue that you need 100% or more due to the increase in medical costs as you get older.
These are just general guidelines — your retirement strategy should be personalized to address your unique lifestyle needs, based on an assessment of your income and the resources available to you.
To start, look at your fixed expenses and discretionary spending. Fixed expenses are the necessary, ongoing costs in life that don’t change drastically in frequency or amount — like groceries, utilities, mortgage and car payments, insurance premiums and more. Discretionary expenses are the things that you spend money on but don’t need — like entertainment or eating out. Sometimes we call these our “wants” instead of “needs.” For instance, above and beyond my basic expenses (needs), I very much want to pursue woodworking as a hobby in retirement.
Due to inflation, it's also important to incorporate cost-of-living increases into both your fixed expenses and discretionary spending plans. Remember, you may be in retirement for 20 to 30 years, or more, and the cost of different goods and services will rise over time.
Question #2: Will you have enough income to support your retirement goals?
Once you have an idea of how much your ideal retirement might cost, think about whether you’ll have the necessary income to support it. Your goal should be to generate a stream of retirement income that lasts as long as you do.
For many, there are three key sources of retirement income: Social Security, pension payouts and retirement savings, such as money in 401(k) plans, taxable accounts and IRAs.
When determining if you have the necessary funds, make sure to factor what-if scenarios into your analysis, as life is filled with unexpected changes. For example, think about your health and how it can be impacted with age and the rising cost of health care. Best-case scenario: You’re in excellent health until you pass away, keeping medical costs low. Worse-case scenario: You need long-term care, where costs may be significant.
If you’re in good financial and physical health, you may want to hold off on dipping into Social Security to maximize your check. While some people claim Social Security benefits at age 62, which is the earliest age possible, you may want to consider delaying until as late as age 70, because your benefit amount will be higher.
Question #3: If you’re falling short on income, how can you bridge the gap?
There are many ways you can try to do this, such as delaying retirement, working part time, cutting expenses or increasing retirement savings. Suppose you put off retirement by two years; that could greatly improve your financial situation. After all, you would have two more years to save and earn potential investment returns.
So, you need to ask yourself if you want to stop working or keep some source of earned income. As someone who enjoys their work, I plan to continue doing it until I’m well into my 70s.
Another option can be to trade down your home. Downsizing and/or moving to a lower-cost state can be great ways to cut back on your expenses. Once your children are grown up, there isn’t a need to have all that extra space anymore. But, if you aren’t ready to sell, you can rent out the home to bring in extra cash as well.
So, what’s next? For help answering these important questions and developing a retirement savings and income strategy that works best for you, talk to a financial adviser or financial planner about strategies to support your lifestyle goals.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Chuck Cavanaugh is the Head of Financial Planning for Citi U.S. Consumer Wealth Management, where he is responsible for leading the financial planning team. The team works with clients to develop and implement financial plans, including estate & trust planning, charitable giving, intergenerational planning, business succession, secured retirement income, risk mitigation and wealth protection.
-
Stock Market Today: Dow Logs Longest Losing Streak Since April
The November Producer Price Index showed that inflation remains a tough beast to tame.
By Karee Venema Published
-
Why Uber Stock Is Volatile After GM's Cruise Announcement
Uber stock is swinging this week following news that General Motors is restructuring its Cruise unit. Here's what you need to know.
By Joey Solitro Published
-
Three Possible Tax Impacts for Retirees Under Trump
How might a second Trump term affect your tax bill in retirement — or the inheritance tax bill for your heirs? This pro has three predictions.
By Evan T. Beach, CFP®, AWMA® Published
-
What to Know About Leverage and Bitcoin's Meteoric Rise
Leverage in the financial world can lead to astonishing success or a crushing collapse. How are investors using leverage to invest in bitcoin?
By Stephen P. Harbeck Published
-
How Do You Know When It's Time to Change Financial Advisers?
Sometimes a breakup is for the best. Here's how to handle 'the talk' and make the switch to a new professional who's a better fit for you.
By Kelli Kiemle, AIF® Published
-
The Best Ways to Use Your Year-End Bonus (and the Worst)
'National Lampoon's Christmas Vacation' shouldn't be anyone's go-to for financial advice, but it does remind us how not to spend a holiday bonus.
By Frank J. Legan Published
-
LLCs: Power Tools That Can Create Big Problems
Forming an LLC for your business might seem like a straightforward endeavor, but if you don't know exactly what you're doing, trouble could follow.
By Rustin Diehl, JD, LLM Published
-
Never Talk About Money? For Women, That Can Spell Disaster
How can you plan for retirement when your husband holds the purse strings and talking about money is taboo? Help is at hand for this common problem for women.
By Cynthia Pruemm, Investment Adviser Representative Published
-
How Combining Your Home Equity and IRA Can Supercharge Your Retirement
While many retirees own an IRA and a home, very few are considering how they could work together in a plan for retirement income.
By Jerry Golden, Investment Adviser Representative Published
-
The Six Estate Planning Steps Every Blended Family Must Take
Whether your blended family is newly formed or fully fledged, use these six steps to review your estate plans now and lower the risk of conflict in the future.
By Stephen B. Dunbar III, JD, CLU Published