5 Important Retirement Questions to Ask

Answering These Questions Will Help You Create a Plan That Works

Retired woman gardening with granddaughter
••• Hero Images/Getty Images

Retirement is a goal that the majority of Americans want to reach. Many people wait to ask the right retirement questions despite knowing the importance of taking steps to save as early as possible. Another potential roadblock on the path to retirement is that not everyone shares the same definition of what “retirement” actually means to them.

No matter what your ideal vision of retirement may be, you must answer some important questions to make your dream become a reality. Here are five basic questions to ask as you begin approaching retirement.

Key Takeaways

  • Ask yourself important retirement questions about your goals, resources, and budgetary requirements.
  • Life expectancy is a key factor; after turning 65, one in three women and one in five men will live beyond 90.
  • To replace about 80% of your preretirement income, you will generally need to save about 10-20% of income throughout your working years.
  • How much money will you need in retirement? Financial planners often advise a “safe withdrawal rate” of 4% per year.

1. What Do You Want to Do in Retirement?

During your 20s, 30s, and 40s, fully envisioning how you will spend your financial freedom years can be difficult. Once you reach the 10- to 15-year window prior to retirement, the sense of urgency likely will increase. Make time to consider these retirement questions to identify the “why” behind your goals. Understanding why retirement is important to you begins with asking yourself what you look forward to doing the most.

Use these additional questions to help guide you:

  • How do you currently spend your free time?
  • How often do you plan on traveling to see friends or family? 
  • Will regular vacations be part of your plan?
  • Do you want to work part-time, volunteer, or start a business?
  • Where will you decide to live? 

If retirement is a distant dream or you have no idea when you want to leave the workforce, simply focus on the things that you currently enjoy spending your time doing. Your personal definition of retirement may be as simple as having the opportunity to devote more of your time and resources toward the things you already enjoy doing today.

2. How Long Do You Need Your Money to Last? 

This question is really asking how long you plan on living. Life expectancy isn’t something most people like to think about, but the reality is that your expected longevity will play a significant role in your retirement planning projections. The longer your life expectancy, the greater the anticipated cost of retirement.

After turning 65, one in three women and one in five men will live beyond 90. Before you can estimate how many years you will spend in retirement, you need to figure out when you want to retire. You should use as realistic of a life expectancy as possible. You also should personalize your assumptions based on your own health and wellness history as well as your family’s history of longevity.

You can use the average life expectancy for men of 76 years, or 81 years for women. If you're not sure how long you'll live or if your retirement date is a moving target, there are a few different retirement scenarios to help you decide how long your money should last.

3. How Much Retirement Savings Will You Need? 

If you have five years or less until your desired retirement age, you should complete an actual budget plan for retirement. The best approach to a budget is to think about your standard of living and ask yourself some questions, such as whether you plan to maintain your existing lifestyle, or if you require more money to fund your retirement adventures.

Otherwise, studies suggest that retiree expenses average between 70% to 85% of preretirement income. You can adjust this target up or down depending on if you want to enjoy a more active or a more frugal lifestyle.

Just keep in mind this number is merely a ballpark estimate. Reviewing your current and future budget is a more reliable method to figure out your desired income amount. Many other factors, such as your planned lifestyle expenses, future inflation rates, anticipated health care expenses, and whether or not you will be debt-free, influence the total amount of savings needed to fully fund your retirement.

4. How Much Should You Be Saving Today? 

The easy answer to this retirement question is to save as much as possible. In order to replace about 80% of your preretirement income, you will generally need to save about 10-20% of income throughout your working years. This can be a tough pill to swallow if you are in the early stages of your career or focusing on paying off high-interest consumer debt.

If you cannot save as much today as you would like, try to contribute up to your employer’s matching contribution. When you're ready to increase your savings, run a basic retirement calculation to assess your actual target savings amount and get back on track.

5. How Much Can You Afford to Spend Yearly Once Retired?

Conventional wisdom among financial planners often relies on a “safe withdrawal rate” of 4% per year. The Rule of 25 is similar to the safe withdrawal rate. The theory behind it is that you need 25 times your first year’s income for your retirement nest egg.

For someone with $50,000 per year in retirement expenses not covered by defined income sources such as Social Security, pension, or other income sources, they'll need $1.25 million (25 times $50,000) to reach this income goal. Remember this is a general guideline and the term “safe withdrawal rate” can be extremely misleading.

The Bottom Line

Perhaps the most important thing is to remain flexible during your early retirement years, as your withdrawal rate will depend on the sequence of investment returns and inflation rates during the first 10 years of retirement.

It probably comes as no surprise that retirement planning is the top financial planning priority for the majority of American workers. Unfortunately, most of us spend more time planning for a big trip or a major purchase than for retirement. The good news is that the entire planning process can be much less overwhelming if you simply focus on these five important questions as you approach retirement.