Retirement is an important phase of life when people leave behind long-term professions to embrace lifestyles with less encumbrances. Those who have spent decades working and saving money for retirement look forward to reaping the benefits of their hard work. Upon retirement, people may choose to spend their time pursuing activities such as traveling, visiting family and friends, embracing new hobbies, taking classes, joining clubs and organizations, performing volunteer work, and more.
Here are eight commonly asked questions about retirement:
- What is the best age to retire? The optimal age to retire depends on many variables, including what you’ve saved, your income, how much you plan to spend, and how long you are expected to live. According to the U.S. Census Bureau, the current average age of retirement in the United States is 63, though this number varies by state. Age 63 is viewed as a young retirement age. In general, where the cost of living is higher, the average retirement age is also higher. Since Americans are living longer and money must last, retirement ages are going up. Many people are opting to work until full retirement age to earn and save more money, and some even continue to work part-time in retirement. Early retirement may sometimes cut benefits. According to the Social Security Administration, full retirement age for most people still working is between 66 and 67.
- How much money should I have to retire? Most retirees depend on a combination of the money they’ve saved, pension plans, and government-run programs such as Social Security and Medicare. Use an online retirement savings calculator to obtain a maximum monthly savings goal. Understand that this number is just an estimate. There are many factors which will influence how long your savings may last, including how long you are expected to live and how much you’re spending. Your best bet is to speak with a financial adviser to make sure you’re saving enough for retirement.
- When can I begin to collect Social Security? The earliest a person can start receiving Social Security retirement benefits is age 62. At that age, a person will receive a percentage of a monthly benefit based on a sliding scale. Those who delay retirement benefits until after full retirement age may be eligible for delayed retirement credits. Despite what you’ve contributed to Social Security over the years, it’s hard to know how long benefits will last for future retirees. In addition, it’s likely that the cost of living adjustments on Social Security benefits will be insufficient to match inflation rates. Some years there are zero increases on Cost of Living Adjustments (COLA), so don’t rely on your Social Security benefits alone. Be sure to grow your nest egg to include diversified investments to draw upon during retirement.
- Do I have a pension? Government organizations and large companies sometimes offer pension plans to employees. This provides employees with a steady source of retirement income that is independent of market fluctuations. Depending upon the plan, employers and/or employees may contribute money to the pension during time of employment. When an employee retires, they will receive monthly distributions after a specific retirement age is reached. If you have questions about your pension plan, talk to a representative of your Human resources department. It is important that you know what to expect from your pension when you retire.
- Should I take money out of my IRA? Individual Retirement Accounts, or IRAs, help people save for retirement on a tax deferred basis or offering tax free growth. There are two main types of IRAs; traditional or Roth. Traditional can be broken down into deductible or non-deductible retirement accounts. Generally, once you reach age 59 ½, you can take penalty-free withdrawals from your traditional or Roth IRA. However, distributions from traditional IRAs are still taxable in many circumstances. Taking money out of your IRA before age 59 ½ will result in penalties. Talk to your investment accountant regarding the balance and tax treatments of your investment accounts before making any transactions. With a traditional IRA, once you turn 70 ½, you will be forced to take the balance out over your life expectancy. The same may apply to a 401(k) or other retirement accounts, but not Roth IRAs.
- When should I start saving for retirement? Start to save for retirement as early as possible. You’ll want to create a properly allocated and diversified portfolio which allows for a steady income stream during retirement. Make sure your plan promotes growth and addresses healthcare and long-term care expenses. Diversify in the stock market, income-producing investments, and alternative investments such as real estate. It’s a good idea to speak to a financial adviser who can guide you in decision making. Remember, avoid touching retirement funds as it may impact your ability to retire when you’re ready.
- Is health insurance a necessity? Having adequate health insurance is extremely important. Do you have an employer sponsored plan that you can buy into or keep during retirement? Or, is it possible for you to enroll in your spouse’s employer-sponsored plan? In many cases, these options are cheaper than purchasing health insurance on your own. Medicare is a government-run program that provides medical care for most people over age 65. It is a good idea to supplement Medicare with an additional health insurance policy. People who retire early will need to fill in the gap. Those ineligible for Medicare due to conditions such as having a FICA-exempt job, also need to buy insurance on their own. Be sure to shop around for the best prices on the private market.
- Should I plan for assisted living? Proper retirement preparations should include planning for assisted living. Since people are living longer, it’s likely that there may come a day when an elderly person is unable to live on his or her own. There are many ways to pay for senior care, such as income and savings, Veteran’s benefits, home equity, reverse mortgage, life insurance policies, long-term care insurance, and family support. Long-term care insurance, LTC or LTCI, is an insurance product that helps pay for the cost of long-term care. It is designed to help you cover the costs of a nursing home or other skilled care as you age. Like most insurance policies, one must consider purchasing it before it is needed. Otherwise, the policies may be unavailable or costly once it is determined that you need protection.