7 Most Frequently Asked Retirement Questions
These Are the Most Commonly Asked Retirement Questions
From both clients and readers, here are the seven most common retirement questions I am asked.
1. When Should I Begin Taking Social Security?
The when to take Social Security question is at the top of the list because it is a decision nearly every American must make. You get less monthly income if you begin benefits early, and more monthly income if you begin benefits at a later age. Too many people assume this is a simple decision – and they take the option that puts more money in their pockets early on. A simplistic choice like this can cost a family thousands (in some cases even hundreds of thousands) of missed benefits. Rather than making a decision about Social Security independently of the rest of your situation, look at how it fits in holistically with all aspects of your retirement income plan, such as inflation, longevity, the need for guaranteed income, the amount of financial assets you have, your plans to work part-time in retirement, and your tax situation.
Other variables such as your spouse or ex-spouse's income may play into this decision as well.
2. How Long Will My Money Last?
This is a common retirement question, and unfortunately, one of the most difficult ones to answer. To answer it you must estimate things like how long you will live, how much you will spend, what rate of return you will earn on savings and investments, what types of medical expenses you will incur, and what tax rates will be. Once you have projected these items, you can estimate how long your money will last in retirement. However, rather than settling on a “number” it is best to come up with a few different scenarios that show you how much you would need if your returns were lower, or if you spent more.
This type of planning will give you a range of savings needed, which I think is a better approach than targeting a single number.
3. How Much Money Do I Need to Retire?
Like the retirement question above, the answer to this question depends on a lot of variables despite what some of the overly-simplistic online calculators might reveal. Some folks spend very little, worked at the same job their whole life, and will retire with a sizeable monthly pension. They may need very little money beyond that pension to support a comfortable lifestyle. Other folks are used to spending a lot and don’t have a pension. They will either need a large amount of savings to support their lifestyle or they will need to find a way to be happy living on less.
If you want to come up with an estimate of your own needs for retirement money here are four steps you can use to estimate how much you’ll need to retire. Now that pensions are considered a thing of the past, the majority of Americans are retiring with far less money than they need. Budget on the conservative side as you're making plans.
4. Should I Buy an Annuity?
An annuity is an insurance product that insures your income for life. If you have other sources of guaranteed income such as Social Security and a pension, and those sources cover most of your living expenses in retirement then you probably don’t have a need to insure additional income. However, if you don’t have much guaranteed income, then it may make sense to buy an annuity that will insure a minimum amount of future income. This decision, like most financial decisions, is one best made as part of holistic financial plan.
There are goods and bads with annuities--notably, the high cost of most. Weigh the cost with the expected benefit.
5. How Much Will I Spend?
Some people spend more once retired; they travel or engage more in hobbies such as golf, skiing, boating, etc. Others find they spend less as they are no longer commuting, paying for dry cleaning, or eating out as much. To determine how much you might spend in retirement first sit down and examine your current spending. Then estimate which items may increase or decrease to come up with a retirement budget. If your employer doesn’t offer a health care plan for retirees then make sure you factor in health care premiums that you will need to pay out of pocket--most notably, the cost of a Medicare Advantage plan.
6. How Will I Pay for Medical Expenses in Retirement?
Medicare health care coverage begins at age 65, but, on average, it will only cover about 50% of your total health care expenses in retirement. You will have out of pocket expenses for eye care, dental, hearing, co-pays, Medicare Part B premiums, and premiums for other supplemental insurance policies you may purchase such as a Medigap policy and long term care insurance. Medical expenses can vary widely by geographic location, but on average, expect to spend about $5,000 - $10,000 per year per person.
7. Should I Take My Pension as a Lump Sum?
Many pensions offer a lump sum option or an annuity option that pays monthly income for life. I see too many people take the lump sum without carefully analyzing the lifetime outcomes of their potential choices. When looked at over life expectancy, the annuity option may be a much better choice than the lump sum. Be sure to thoughtfully examine your pension choices in light of your entire financial picture before you make a decision.