- 2-Minute Article
Are You Financially Ready to Retire?
Help make sure your finances are prepared for the transition to retirement with these simple questions.
With retirement just around the corner, you’ll want to make sure your finances are in good shape for this next adventure. Use these three questions to gauge whether or not your financial foundation is ready to support your retirement plans.
Q: Have you saved enough?
A: If you’re not sure where to begin, experts suggest you’ll need about 70% to 85% of your pre-retirement annual income to live comfortably in retirement.1 Keep in mind a 65-year-old woman has a 68% chance of living to 80 and a 28% chance of living to 90. And a 65-year-old man has a 58% chance of living to 80 and a 17% chance of living to 90.2 Housing expenses alone account for about 32.9% of spending — or $16,219 per year — for people older than age 55.3
You can create a more personalized savings target based on your current annual fixed expenses — such as housing, food, and utilities — and estimates of discretionary expenses like travel and entertainment.
If there’s a gap between what you’ll need and what you have saved, you might need to think about other ways to contribute to retirement accounts or build savings in other potential income sources, such as annuities or life insurance policies that grow cash value. Talk with your financial advisor about strategies to help fill the gap.
Q: Do you have an income strategy?
A: If you have a number of potential income sources, it’s important to develop a plan for most efficiently withdrawing the funds. Begin with these steps:
- Inventory your sources of guaranteed lifetime income, including Social Security and any pensions.
- Factor in distributions from your retirement accounts, remembering that many plans require you to begin withdrawing by age 70½.
- Measure income sources against your projected retirement expenses.
Keep in mind that some annuities can help make up for any gaps you see. They also may provide other advantages, such as leaving your money invested for potential growth and allowing you to delay claiming Social Security — increasing the size of your lifetime benefit.
For example, if your full retirement age begins at 66, your Social Security will increase 8% annually on average for every year you choose to delay your benefit until age 70.4
Q: Are you protected against the unexpected?
A: Retirement can bring surprises — such as market fluctuations or medical expenses. It’s crucial to protect yourself. Fortunately, some permanent life insurance policies, while offering a death benefit, also provide a cash value that can be used to cover unanticipated expenses during your lifetime. Likewise, annuities provide guaranteed income regardless of the value of your other investments. Adding safeguards like these can shore up your finances and secure your future.
Talk with your financial advisor about how annuities and life insurance can be used to help fill in gaps in your retirement savings plan today.