8 Questions to Ask When Planning for Retirement

Retirement is a significant milestone in life that brings both excitement and uncertainty. To ensure a smooth transition into this new chapter, careful planning is essential. In this blog post, we will explore the key considerations when planning for retirement, guiding you through the essential questions you should be asking yourself.

What type of retirement do I imagine myself living?

What does retirement look like for you? Retirement is a highly personal experience, and it is important to define what retirement means for you. Take a moment to envision your ideal retirement lifestyle. Consider aspects such as where you want to live, what activities you want to pursue, and how you envision spending your time. This vision will serve as a foundation for making informed decisions during the planning process.

What do I want to be spending my money on in retirement?

Imagine that you retire tomorrow, what expenses would you still have? Create a retirement budget in today’s dollars that accounts for essential costs like daily living and discretionary expenses. Keep your liability payments like your mortgage or other debts separate, you still want to budget for them if they will still be around when you first retire but we can count on those liabilities falling off eventually. The same goes for vacation spending or other big-ticket items, think about a realistic annual budget for travel and how long you would like to have that expense in your plan.

What will healthcare cost?

Healthcare costs in retirement are a major concern for many individuals. As we age, healthcare expenses often increase, and without employer-sponsored health insurance, retirees must pay for their healthcare out of pocket until they become eligible for Medicare. Even with Medicare, retirees can still face high out-of-pocket expenses such as premiums, deductibles, coinsurance, and prescription drug costs. It's important for individuals nearing retirement age to plan ahead and ensure they have enough saved to cover their healthcare expenses in retirement. Long-term care insurance may also be worth considering to help mitigate the potentially hefty costs of nursing homes or assisted living facilities.

How do I account for rising costs in retirement?

I know we are all tired of hearing about inflation but it is crucial to proactively plan for rising costs in your retirement. To put it in perspective, a dozen eggs in 1952 were 70 cents, compared to the national average price today of $3.27, which is 399.21% higher. When you break that down, that’s only a 2.32% average increase per year. This is right on par with the average recommended inflation rate to plan for, which is 2.5-3%. Now imagine if you did not build that increase into your retirement plan and your retirement budget only allotted you .70 cents for eggs throughout your life. It sounds straightforward but it is one of the biggest errors that I see when people are planning for retirement on their own- they don’t factor in a cost of living adjustment. By accounting for inflation in your calculations, you can maintain the purchasing power needed to sustain your desired lifestyle and have a stronger chance of not outliving your money.

When should I claim Social Security?

When to claim social security is a significant decision that will impact an individual’s retirement benefits for the rest of their life. Social Security benefits can be claimed as early as age 62 or as late as age 70. The longer an individual waits to claim, the higher the monthly benefit they will receive when they do claim. However, if an individual decides to claim early, they will receive a reduced monthly benefit. A commonly recommended strategy is to wait until full retirement age, which ranges from age 66 to 67 depending on the year in which an individual was born. Claiming at full retirement age means an individual will receive their full, unreduced benefit amount. However, when deciding when to claim social security, it is essential to consider factors such as health status, other sources of retirement income, and overall financial goals.

Additionally, explore any other retirement benefits available to you, such as pensions or employer-sponsored plans. Keep in mind that Social Security and most pensions do not keep pace with inflation, so it's crucial to factor this into your planning.

What do I already have saved for retirement?

Once we know what expenses to plan for and what income you will be receiving in retirement, we can calculate what you need to be saving today to reach your retirement goal. Assess your current savings and investments to determine if they align with your retirement goals and adjust your savings and investment strategy if needed. This may involve increasing contributions, diversifying investments, or even delaying retirement. Regularly reviewing and adjusting your retirement savings plan can help you stay on track and achieve the retirement lifestyle you desire. Consulting with a financial advisor can provide valuable insights and help optimize your savings and investment plan.

How comfortable am I with investing my retirement money?

Determining your risk tolerance is an important factor to consider when building your investment portfolio. Risk tolerance is the amount of risk you are willing to take when investing your money. As you near retirement age, your risk tolerance may decrease as you seek to protect the wealth you have accumulated over the years. It is important to evaluate your personal circumstances and goals to determine your risk tolerance. Factors such as age, income, and financial obligations should be taken into consideration when making investment decisions. Working with a financial professional can also provide guidance and help you make informed decisions about your retirement investments. A proper understanding of your risk tolerance can help you create a retirement portfolio that balances risk and return, helping you reach your financial goals while protecting your assets.

What could derail my retirement plans?

Finally, when you feel like you have a good plan in place, you need to consider what could break it. Unexpected events can derail even the most carefully crafted plans. While this isn't a fun conversation to have, it is the most important one. Initiate conversations early and explore strategies to mitigate risks such as market volatility, unexpected health issues, or extended longevity. By proactively managing risks, you can enhance the probability of a successful retirement.

When planning for retirement, it is crucial to consider various factors that can significantly impact your financial security and overall satisfaction. By addressing questions regarding retirement budgeting, healthcare, inflation, benefits, savings, investments, and risk management, you can lay the foundation for a solid retirement plan. Take the time to evaluate your unique situation, seek professional advice when needed, and make informed decisions that align with your vision for retirement.

Remember, we are here to help you navigate the complex world of personal finance and help you make informed decisions that align with your goals. Connect with us to take the next step toward reaching your own infinite heights!

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.