Most baby boomers have worked hard their entire lives with the dream of one day retiring comfortably. They imagine traveling around the world, spending time with family and friends, and trying hobbies they never had time to take on before.
Unfortunately, this is not the reality for most retirees because it requires savings that many people just don’t have. One report found that nearly one-third of seniors had no money saved for retirement.
As a Medicare insurance expert who has met thousands of boomers turning 65 and getting ready to enter retirement, I can attest that it can be a truly devastating and scary time for individuals who thought they would be able to manage on just Social Security alone.
Of the baby boomers who do have retirement savings, the average amount saved is just $200,000. Yet to make it through a 30-year retirement, most experts agree you should have a nest egg of at least $1 million. At the very least, you should plan on saving 10 to 12 times your total annual income.
Unfortunately, so many leave the workforce entirely unprepared for retirement. If you are one of these people, take a moment to consider the costs you can expect to encounter during retirement.
How Much Do I Need to Retire?
There’s no shortage of recommendations on how much the average American should save for retirement. But how do you know what you should be saving for your personal circumstances?
Here are five things you should consider as you look at your retirement goals:
1. Expected lifestyle
To put it simply, the more you’re hoping to do in retirement, the more you’ll need to have saved. Most people don’t expect to live on less after they retire. Most people guess that they’ll need an income that’s consistent with what they’re currently earning. Plus, they want additional funds to travel.
All too often, people underestimate what they will need to live comfortably in retirement. This leads to overspending in their first year of retirement because they didn’t plan for things like health care, travel, and other expenses.
2. Health care
If you’re like most Americans, then your employer currently pays for most or all of your health insurance premiums. Gone are the days when most companies continued to provide this even to retirees. If you are like most who will lose employer coverage altogether, you’ll need to think about how you’re going to account for health insurance after you’re retired.
Medicare is not free, and it doesn’t cover all of your costs either. You’ll pay deductible, copays, and coinsurance just like you have on other health plans in the past.
It’s best to start thinking about this long before you’re ready to retire. Research Medicare plans and find out what your options are. Are you eligible for Medicare? What will you pay for Medicare Part B based on your current income? What are the average costs of Medicare supplement plans and Part D drug plans in your zip code?
Sit down with a Medicare insurance broker to estimate these expenses for your future.
You should also do an analysis of your current health care situation and think about what your future needs will be. Consider your average medical usage in any given year. Take your family’s health history into consideration as well. This will help you figure out how much of your savings should be set aside for medical expenses.
3. Retirement taxes
Unfortunately, taxes don’t go away in retirement. So unless you’re planning to live solely off of Social Security then you’ll need to plan on paying taxes on your retirement savings.
Most retirement savings are taxed in retirement and pensions are usually taxed as well. The amount you end up paying depends on your income, deductions, and what tax bracket you fall into
To estimate your tax rate, add up each type of expected income. Then you can subtract any deductions or exemptions. Find out what tax bracket you fall into and from there, you should be able to estimate how much you’ll owe in taxes.
Do you have children or extended family members who are able to support you in retirement? Is your life expectancy significantly longer than your spouse’s?
These are all things you’ll want to consider because if you don’t have a lot of family support, it stands to reason that you’ll spend a lot of time alone in retirement. As you get older and your health declines, you may need to hire someone to help you.
There are long-term care insurance policies you can purchase to plan ahead. There are even short-term care policies for those that can’t afford fuller coverage. Something is better than nothing, so consider investing in one to help you with the potential costs of assisted living down the road.
5. Expect the unexpected
You probably have a plan for when you’ll retire. 39% of people plan to work until age 70. But research has shown that most people retire much sooner than they planned. In fact, the average age of retirement is 63.
Life happens and you may not be able to plan your retirement as well as you’d like to. Retiring earlier than expected could cause a gap between your employer-covered health insurance and what you planned to use during retirement.
So, if you’re saving for retirement based on the assumption that you’ll be able to work well into your 70’s, you might want to think about what you’ll do if that becomes physically impossible..
How to Get Started
Studies show that half of all Americans haven’t saved anything for retirement. This is concerning but the good news is, if you’re part of that statistic, it’s not too late to get started.
The best ever time to get started planning for retirement is today!
Look over your retirement savings plan and figure out what you need to do to begin moving in the right direction. If you’re not sure where to begin, consult with an expert who can help guide the way.