It’s always a good idea to plan for retirement instead of improvising. And in the course of your planning, you can aim to land on a retirement date and setting that’s ideal for your senior years, whether it’s a bustling city or a quiet country home.
But aside from those things, there are certain financial factors you’ll need to consider. Here are three you can’t afford to overlook.
1. The amount of your future Social Security benefit
Social Security it does not pay a single universal benefit. Rather, the benefit you’ll be in line to receive in retirement will depend on two factors:
- your earnings for life
- The age at which you claim benefits
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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 earnings statement, which should contain an estimate of your future benefit. Keep in mind that the further away you are from retirement, the less accurate the estimate will 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 turn full retirement age (assuming, of course, that you retire early and claim benefits immediately). On the other hand, if you think you’ll be working into your 60s and delay filing for Social Security until 70 yearsyou 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 can vary based on market conditions, Social Security will pay you the same benefit for life (without taking into account annual cost-of-living adjustments). Therefore, it is important to know which payment you are in.
2. The amount of annual income your savings will give you
You may be inching toward retirement with a decent amount of cash in your IRA or 401(k) plan. But how much will that really amount to on an annual basis? To find out, you’ll first need to calculate an annual withdrawal rate and then run some numbers.
For years, financial experts have advised savers to stick to a 4% annual withdrawal fee. You may want to go higher or lower depending on your personal situation. But if we use 4% as a starting point and you have $1 million in savings, that leaves you with $40,000 in annual income. Knowing that, plus the amount of your Social Security benefit, could inform certain retirement decisions you make, like the type of house you choose to own or the city you decide to call home.
3. The amount you will spend on health care
Medical care tends to be a substantial expense for retirees and it is difficult to estimate its cost in advance. That’s because there are a lot of different factors that go into that equation, like your personal health and the Medicare plan you choose.
That said, you can still research different Medicare costs to get an idea of what might be on. That could, in turn, help you build a more accurate retirement budget. Keep in mind that Medicare costs can rise from year to year, so if you’re still a decade away from retirement, you may need to substantially increase current numbers in order to create your own estimates.
Retirement can be a rewarding period of life, but it can also be financially precarious. In the course of your planning, be sure to keep these factors in mind so that they can guide you to sound decisions.
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