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.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
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.
-
How to Assess the Impact of Your Charitable Giving
Here are five simple ways to 'do this, not that' when trying to find out from a nonprofit what kind of impact your donations are having.
By Catherine Crystal Foster Published
-
How a Two-Year Installment Sale Strategy Can Save on Taxes
When selling property or other substantially appreciated asset, you could spread the taxes over two years to save big bucks. Following the rules is critical, though.
By Derek A. Miser, Investment Adviser Published
-
How to Assess the Impact of Your Charitable Giving
Here are five simple ways to 'do this, not that' when trying to find out from a nonprofit what kind of impact your donations are having.
By Catherine Crystal Foster Published
-
How a Two-Year Installment Sale Strategy Can Save on Taxes
When selling property or other substantially appreciated asset, you could spread the taxes over two years to save big bucks. Following the rules is critical, though.
By Derek A. Miser, Investment Adviser Published
-
Five Ways to Make Retirement a Little Less Scary
To avoid lying awake at night once you’re retired, consider having these strategies in place before you take the plunge.
By Evan T. Beach, CFP®, AWMA® Published
-
With Irrevocable Trusts, It’s All About Who Has Control
An irrevocable trust must be carefully funded, structured and managed to achieve both asset protection and tax planning.
By Rustin Diehl, JD, LLM Published
-
If You’re Preparing to Move, Should You Buy or Rent?
Both prospects are expensive these days, but there are several questions you can ask yourself to help you decide what’s right for you.
By Justin Stivers, Esq. Published
-
How Annuities Can Help You Retire Early and Delay Social Security
Waiting until 70 to claim Social Security benefits can pay off, so how do you bridge the gap between giving up your paycheck and filing for benefits?
By Ken Nuss Published
-
How to Get Your Kids to Step Off the Gravy Train
A surprising number of young adults live with their parents. Setting some financial ground rules could get the kids out on their own faster.
By Neale Godfrey, Financial Literacy Expert Published
-
Spring Is a Good Time to Clean Up Your Finances, Too
While you’re decluttering your home for spring, consider also taking a crack at cleaning up your finances and old paperwork.
By Tony Drake, CFP®, Investment Advisor Representative Published