It’s always a good idea to plan for retirement rather than dodging it. And during your planning, you might aim to land on an ideal retirement date and setting for your retirement years, whether it’s a bustling city or a quiet country home.
But in addition to these things, there are certain financial factors that you will need to consider. Here are three you can’t afford to ignore.
Image source: Getty Images.
1. The amount of your future Social Security benefit
Social Security does not pay a single universal benefit. On the contrary, the benefit you are likely to receive upon retirement will depend on two factors:
- Your income for life
- The age at which you apply for benefits
You can get a basic idea of what Social Security will pay you each month in retirement by creating an account on the Social Security Administration website and accessing your annual income statement, which should contain a estimate of your future benefits. Remember that the further away you are from retirement, the less accurate this estimate can be.
Also, if you think you’ll end up retiring early, you should expect a lower Social Security benefit than the benefit you’ll get when you reach full retirement age (assuming, of course , take early retirement and apply for benefits immediately) . On the other hand, if you think you’ll be working through your 60s and delay your Social Security filing until 70, you could get a much higher monthly benefit.
The key, however, is to have an idea of what to expect. Although the amount of money you can withdraw from your savings each month may vary depending on market conditions, Social Security will pay you the same benefit for life (disregarding annual cost-of-living adjustments). It is therefore important to know what payment you are intended for.
2. The amount of annual income you will earn from your savings
You may be approaching retirement with a good amount of money in your IRA or 401(k) plan. But what will that actually represent on an annual basis? To figure this out, you’ll first need to establish an annual withdrawal rate and then calculate some numbers.
For years, financial experts have advised savers to stick to an annual withdrawal rate of 4%. You may want to increase or decrease depending on your personal situation. But if we use 4% as a starting point and you have a nest egg of $1 million, that leaves you with $40,000 in annual income. Knowing that, the higher the amount of your Social Security benefits, could inform some retirement decisions you make, such as the type of home you choose to own or the city you decide to call home.
3. How much you will spend on health care
Health care tends to be a big expense for retirees, and it’s hard to estimate the cost in advance. Indeed, many different factors go into this equation, such as your personal health and the health insurance plan you choose.
That said, you can always research different Medicare costs to get an idea of what you might expect. This, in turn, could help you establish a more accurate retirement budget. Keep in mind that Medicare costs can escalate from year to year, so if retirement is still, say, a decade away, you may need to significantly increase today’s numbers in order to create your own estimates.
Retirement can be a rewarding time of life, but also a financially precarious one. As you plan, be sure to consider these factors so they can guide you to sound decisions.
Comments are closed.