If you are a member of Generation X, now is a good time to evaluate your financial preparations for retirement. As you approach retirement age, you need to start thinking not only about how you want your retirement to look but also about if you’re fully financially prepared to retire when you expect to retire.
So what do you need to think about when thinking about retirement? Below we outline six questions that will help you figure out if you’re ready to retire, when you can retire, and will determine what retirement looks like for you.
1. What are my retirement milestones?
Retirement milestones are the various events that you want to occur when you retire. For example, you might want to partake in annual worldwide trips when you’ve retired. Or maybe you want to go back to school and try out a completely different career during retirement.
If you truly want to live out your best life during your retirement, you’ll need to think about the financial implications of these retirement milestones. Making sure that you have enough money to do the things you have always wanted to do during your retirement will help you enjoy retirement more.
2. What are my responsibilities?
Another important question to ask yourself is “what are my responsibilities?” Do you have elderly parents that you are going to have to care for in the future or college-aged children that may need your help? While these aren’t the only scenarios that will affect your retirement, it’s good to start thinking about what responsibilities you have that may require you to draw on your savings and investments.
According to the experts, you need to replace between 70 and 90 percent of your pre-retirement income with your savings and social security income. That means a person who makes $63,000 a year, would need an annual retirement income of between $44,000 and $57,000 to retire comfortably.
If you have additional responsibilities, you may need more than this to live comfortably. By asking yourself what obligations you will have during retirement, you can better understand how much money you need to save to ensure that you accurately plan for your retirement.
3. How will I make ends meet?
You want to make sure that your retirement income sustains you for the long term. This is especially important as people continue to live longer than they did 25 years ago. In fact, according to researchers, most people that live past 65 can reliably expect to live well into their 80s.
When you’re getting ready to retire, you need to consider how you will continue to make ends meet as you age. If you remembered to ask yourself about your obligations, you will have a good idea of what kind of expenses you will have as you continue to get older.
A good exercise to determine if you have enough to make ends meet is to sit down and write down all your monthly expenses, including a good and reasonable estimate of the unforeseen obligations that you might have as you age.
After you’ve written down those expenses, you will then need to gather up a reasonable estimation of the monthly income you can expect during your retirement. Once you have done that, you then need to subtract your expenses from your monthly retirement income.
Do you have any money left over at the end of the month, or are you seeing negative numbers? If you have income left over, check if that income can support your retirement milestones. Will you be able to go on that Safari, you always wanted to go on? Or do you only have enough money left to sit around the house and watch reruns on Netflix?
If you find that you’re in the negative or that you don’t have enough money to sustain your retirement milestones, you will need to consider one of the following options. You can either plan to work a little longer while you shore up your retirement income, you can plan to work part-time during your retirement, or you can start to look over your retirement benefits and investments.
4. What do my retirement benefits and investments look like?
The next question you need to ask yourself as you approach retirement age is “what do my retirement benefits and investments look like?” Asking yourself this question will help you to take a look at your current retirement benefits and investments and evaluate if you are saving enough money to retire comfortably.
This is also a good time to check your retirement funds and see how they are growing. Log in to your 401(k) fund portal and see how much money you have earned in your investment portfolio. Check your other retirement funds and see how much money you have.
You should also log on to the Social Security website to check on what income you can expect to receive once you are old enough to qualify for Social Security payments. The portal is fairly simple to access once you’ve signed up.
Once you have signed up the Social Security Administration will give you an estimated income at the proposed age of retirement and you can use this to help you with figuring out if you have enough money to meet your obligations.
If you are finding that you do not have enough money to meet your responsibilities, there are still things that you can do to boost your post-retirement income. For example, once you hit 50, you can typically save an additional $6,500 a year over the normal maximum of $19,500 in your 401(k).
This is also a good time to make sure you are maxing out your 401(k) with your employer’s matching option. If your employer will match contributions up to a certain percentage amount, make sure that you have maxed that out.
Other investment options are available to you in addition to a 401(k). You can choose to invest in an IRA, Roth IRA, Roth 401(k), Simple IRA, or SEP. There are other investment options for you to choose from as well. The best thing you can do to ensure that you are saving enough money for retirement is to consult with a financial advisor to see what is best for you at this stage in your life.
5. Do I want to work longer?
Another question you may want to ask yourself is “do I want to work longer?” Working longer is certainly an option, especially if you enjoy your career. You may be thinking that you have to retire as soon as you turn 67 or 65 but this is not the case. You can work as long as you want and it may be a good idea from not only a financial standpoint but from a mental health standpoint.
For your mental health, many experts believe that working longer can help you to continue to stay socially connected and active which often leads to fewer health problems and better overall health both mentally and physically. Which, unless you hate your job, is a good enough reason to continue to work.
From a financial standpoint, working longer can help you to not only continue to save more money for your retirement but can also help to raise your Social Security income. The longer you stay working the more money you will have for all your obligations and milestones allowing you to live comfortably and happily in your golden years.
6. What unforeseen events could ruin my retirement?
There’s a phrase called “known unknowns”, these are the things that you know are possible but you cannot pinpoint as something that will definitely happen to you as you get older. One known unknown might be getting sick in your older years or needing someone to take care of you. These are especially true if you are child-free or do not want to rely upon family members to take care of you should you need the additional help.
By considering preparing for these known unknowns, you can easily mitigate the financial damage that they cause. You can invest in Long-Term Care insurance or you can save an extra 10 to 20% in your retirement fund to plan for these unforseen eventualities. The great part is that should you not need these things, no harm has really been done by pre-planning. But if you do happen to need this extra help in your future, pre-planning will be something that you are happy to have done.
I’ve asked myself the 6 questions, now what?
Now that you’ve asked yourself these questions you can make the necessary adjustments to your retirement planning to be better prepared. You can take the information that you gleaned from this exercise and speak with a financial advisor to see if they have any expert advice to help you to meet your retirement needs.
If you came out of this exercise and realized that you have more savings than you need, this can be a good time to rework your will. Knowing that you’ve prepared for most eventualities is good and it can be a great time to update your will with the new information that you have.
We hope this exercise has helped you to better understand what you need for your retirement and to help you retire with ease and comfort.