The most important aspects of retirement planning
For many Americans, retirement will last for decades. Being prepared is essential, and there are a lot of things that go into a successful retirement plan.
But according to research by Wells fargo, three key questions stand out above the rest in what Americans think is most important as they prepare for their later years:
1. Make your savings last
For half of all Americans, making sure a retirement nest egg lasts for life is a major concern. This makes sense, as the depletion of additional savings would leave retirees dependent on Social Security alone, and these benefits do not provide enough to live.
There are two keys to ensuring the sustainability of your savings:
- First, make sure you have a retirement account large enough that it can produce enough income without your investments running out.
- Second, decide on a safe withdrawal rate and stick to it so that you don’t end up withdrawing too much money.
There are different ways to set your retirement savings goals and several different approaches to establishing a safe withdrawal rate, including limiting your withdrawals to 4% of your account balance the first year of retirement, then increasing them each year to keep pace with inflation.
If you know how much income you need to generate with your savings, and you want to follow the 4% rule, one of the easiest options is to multiply your desired income amount by 25. So if you want that your investment account balance gives you $ 50,000 in income, you would need $ 1.25 million.
2. Coverage of health costs
While not running out of cash is a major concern for most future retirees, healthcare coverage comes next, according to research from Wells Fargo. In fact, 49% of Americans describe it as one of the most important aspects of retirement planning.
Prioritizing this financial matter is a smart move, as health care will likely be one of your biggest expenses as you get older. In fact, a recent study estimated the price of premiums for health insurance, prescription drugs and other health expenses at $ 325,000 for an elderly couple retiring in 2020.
Paying such a substantial amount for medical services is only possible if you have prepared yourself as part of your retirement plan. When setting your retirement savings goals, consider these costs and increase the amount you invest in existing retirement accounts or invest money in. an HSA if you are eligible.
3. Estimate of monthly expenses
Finally, about 41% of Americans believe that having an idea of the cost of retirement is the key to a successful retirement plan. This is important because it can both help you set a savings goal and tell you if you are truly ready for retirement.
Knowing how much your monthly expenses will be gives you a clear idea of how much income your savings should generate. And, as mentioned above, if you figure out how much you need to be able to withdraw from your accounts, you can work back from there to figure out your balance amount.
If you are nearing retirement, you can be more specific in your estimate as to whether your savings will produce enough income. In fact, you might even want to try living with your retiree budget to see if it’s realistic before giving notice. If you find that you can easily cover your living expenses with the income from Social Security and your investments (at a safe withdrawal rate), you will know you are ready.
Make sure you are ready to retire
Americans are right to focus on these three key issues when planning for retirement. By estimating the cost of health care and getting a clear picture of your spending, you can determine how much your savings should produce.
Then the last key step is figuring out how much to invest for a nest egg that produces the desired income at a safe withdrawal rate. Check these three items off your to-do list and you are on your way to financial security in your later years.