Retirement Quiz

Many people spend more time planning their vacation than they do planning for retirement. That’s hardly a surprise. After all, vacations are provide more immediate fun! They’re also easier to plan because you know what questions you should ask – (Where will we stay? How will we get there? What do we want to see/do?) – and it’s enjoyable to do the research needed to answer those questions. Planning for retirement, however, is more of a puzzle because it’s all about being prepared for future circumstances and events you can’t foresee. But there are some questions you can ask and answer to prepare a sound retirement plan.

Five questions that can help you get started on better plans for retirement

1. How much should you have saved by the time you retire?

A good rule of thumb is somewhere between12 and 25 times your last full-year’s income, but this is a generalization and can varyvaries according to your income level, amount you can expect to receive in Social Security benefits, and at what age you plan to retire. Most experts say you should plan to live on 80% of your working income after you retire. In other words, if you make $100,000 per year, you should plan on living on $80,000 per year after you retire. Knowing how much of your income will be replaced by social security and other income sources is critical.

2. Given the current average life expectancy, if you retired at age 65, how long would you need your savings to last?

This is another part of planning that is subject to a lot of different variables. The average life expectancy is 85 years for men and 87 for women. If you retire at age 65, that’s 22 years on average – but that’s just an average. We look at much longer life expectancies for clients because wealthier people are healthier. Many live longer than average and therefore need their retirement savings to last longer.

3. How much was the average monthly Social Security benefit last year?

Monthly Social Security benefits in 2018 averaged $1,422. Again, that is just an average, and you may receive more or less when you retire. But it’s a good idea not to make retirement plans that hinge too much on Social Security benefits.

4. What is the single biggest expense for most people in retirement?

Most people say they are more worried about healthcare, but most people actually spend more on housing than on healthcare during their retirement years. That may not be the case for you if you can age in place in a house that is paid for, but for most people, housing is the largest expense.

5. How much will a couple retiring at age 65 spend on out-of-pocket healthcare costs during retirement?

The average healthcare cost for a married couple retiring at age 65 is $260,000. If you average that over the average retirement length of 22 years, it works out to a little less than $1,000 per month per couple.

These are just a few of the facts about retirement today.

More of this is not actually numbers you should use to prepare for retirement, but more for the shock value of am I prepared for this sort of thing?

Most people underestimate their retirement expenses and the amount they need to have saved at retirement.

The sooner you understand the realities of retirement, the better you can prepare throughout your working life.

-Sandra Cleveland-

Sandra Cleveland

Sandra Cleveland

Sandra Cleveland CFP®, CCPS is a Partner and Wealth Manager at BCR Wealth Strategies.