Are You Retirement Ready? 5 Finance Questions to Ask Yourself

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Saving for retirement is a lifelong project. But if you're lucky, as you get closer to retirement age, you might find that instead of saving more money and investing for retirement, you might finally be ready to start thinking about spending the money in your IRA .

Before you decide to retire, it's important to check the numbers. Get a clear idea of how much money you need to retire, and what moves you should make to help your money last the rest of your life.

Here are a few questions to answer as you approach the home stretch of saving for retirement.

1. What is my monthly budget in retirement?

You don't have to be a millionaire to retire; most retirees have less money than that. Studies have shown that many people gradually tend to spend less money as they get closer to retirement age.

Before you retire, think about how much you realistically need to spend in a typical month -- it might be less than you expected. For example, what would your monthly spending look like if:

• Your mortgage was paid off
• You were no longer providing financial support for children
• You didn't need a car or other expenses of commuting to work
• You could get by with a more frugal lifestyle in your golden years -- less frequent travel or less expensive vacations, less dining out and more meals at home
• You could downsize to a smaller home or a location with a lower cost of living

2. How much retirement income will I get from savings?

The goal of saving for retirement with a 401(k), traditional IRA, Roth IRA, or brokerage account is to build up a big pile of investment assets. And then when you retire, that diversified portfolio of stocks, bonds, cash, and other assets can start generating income for you in retirement.

The idea of living off of your life savings in retirement is to create a steady, stable return from your investment portfolio, and withdraw about that amount (or less) each year. This way, you can have a healthy income in retirement, without ever spending all of your savings.

For example, let's say you have $600,000 of retirement savings. Let's assume you can earn 5% returns per year (with a conservative blend of investments that are suitable for a retiree, such as cash equivalents, bonds, and a small percentage of stocks). That would give you an annual income of $30,000 in retirement from your personal savings, not counting Social Security.

3. How much Social Security will I get?

Most Americans can expect to get some retirement income from Social Security. However, Social Security only pays about 40% of the typical retiree's pre-retirement income -- so if you earned $50,000 of Social Security wages, you might get about $20,000 per year of Social Security retirement income.

To get a more exact estimate, check out this Social Security Quick Calculator tool from SSA.gov. It will show you how much Social Security you can get, based on your current earnings and your future retirement date. As of January 2024, the average monthly Social Security retirement benefit was $1,907.

$1,907 per month is better than nothing, but it's not enough for most people to have a comfortable retirement, even if they're frugal. This is a good reason to be careful not to start taking Social Security too soon. If you can keep working, or live off personal savings long enough, delaying the start of your Social Security benefits beyond your Social Security retirement age can help you get a larger monthly payment.

4. How long will my retirement savings last?

Retirement planning is a tough challenge, because you have to make your money last for the rest of your life. Social Security income is a kind of "longevity insurance." Even if you retire at age 65 and live to 105, Social Security will (ideally) keep paying you a monthly check for the rest of your life, and it will be adjusted to increase with inflation.

If you have a big enough retirement nest egg in your 401(k), IRA, or brokerage account, you can hopefully withdraw less than you earn each year in investment returns. Retirement annuities can be another strategy to turn your retirement nest egg into guaranteed income for life.

Many retirees never run out of money, and some might even grow their investment portfolios to pass down assets to their surviving loved ones or favorite nonprofits. Check out The Motley Fool's free Foolish Calculators to crunch the numbers on how long your retirement savings could last.

5. How will I pay for healthcare costs in retirement?

Even if you're not planning for a lavish lifestyle in retirement, many retirees need to be prepared for healthcare costs. Medicare doesn't cover everything. A 2024 Fidelity study found that the average retiree will need $165,000 for out-of-pocket healthcare costs in retirement.

Here are a few ideas for how to plan ahead to pay for retirement healthcare costs:

• If you qualify, use a health savings account (HSA) as a tax-advantaged way to save and invest for future healthcare expenses.
• Consider long-term care insurance to protect yourself from nursing home bills.
• Look at your options for Medicare Advantage plans that might cost a bit more per month, but that can save you money on out-of-pocket expenses.

Bottom line

Getting ready for retirement requires a big shift in mindset, from saving and investing to (responsibly) spending. Think about the big picture of how you can make your retirement savings last longer, how much Social Security you'll get, and how to protect your nest egg from retirement healthcare costs.

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