22 Frequently Asked Retirement Questions

As you approach retirement age, you have some important decisions to make about how you will be able to maintain your lifestyle throughout retirement. There are a lot of factors to consider when planning your retirement, which often leads to a lot of questions. We’ve put together a list of the most common retirement planning questions to consider to ensure you are taken care of throughout retirement.

1. When Can I Retire?

This is one of the most frequently asked retirement questions and the most common answer is that you can retire whenever you can afford to leave the workforce. However, there are some constraints that may affect when you’ll actually be able to retire. For example, many employees have to work 20 to 30 years to be eligible to receive company pensions. Also, Social Security benefits can’t be collected until the age of 62, and Medicare benefits can’t be used until age 65. Many people who receive health insurance through their employer may have to wait until they turn 65 to retire.
Elderly couple working on finances

2. How Much Money Do I Need to Retire?

The amount of money you need to retire depends on multiple factors such as how much money you get from Social Security or pensions, monthly expenses, how old you are at retirement, and how long you live. There is not one set amount for everyone so it is important to work with a financial advisor to determine how much will be needed to retire. Financial advisors use a person’s spending habits, life expectancy, and estimated inflation rates to figure out how much that person will need in retirement.

3. Where Will My Retirement Income Come From?

According to the Social Security Administration, many retirees receive income from four main sources:

  • Personal Savings and Investments
  • Earned Income
  • Company Pension Benefits
  • Social Security Income

4. What Percentage of My Final Working Earnings Will I Need in Retirement Income?

Retirement planning resources suggest 66% to 75% of final earnings as a “rule of thumb.” However, many people have to adjust to a 1/4 to 1/3 drop in their income. We recommend that as you near retirement, you make a monthly “needs” budget based on past spending (review your check register for the last year) and combine that with a “wants” list…. items like travel, golf, entertainment, gifts, etc….so that you have a carefully considered income goal, rather than just an estimate based on your final year’s salary.

5. When Should I File for My Social Security? What Will I Need When I File for Social Security?

Normally, you should file for Social Security three months before you plan to receive benefits. You will need:

  1. Your Social Security card
  2. Proof of your age
  3. Tax forms from the previous year
  4. Marriage certificate/divorce documents, if any
  5. Death certificate, if applying for survivor benefits Call your Social Security office for further details prior to visiting the office
Young couple working on finances

6. How Much Savings Should I Accumulate Before Retirement?

Try to save as much as you can during the time you work leading up to retirement. Plan to save around 10-15% of your annual income during your career. Ideally, this process should start in your 20s and continue throughout the next 35-40 years.

7. How Do I Spend My Retirement Savings?

This is a common retirement question because you’ve spent your career building retirement savings, so what do you do now? Many people move their money into an IRA and then spend from those accounts. You can withdraw money in a couple ways:

  • You can take out a lump sum whenever large expenses come up
  • You can set up periodic transfers to a checking account

Be aware that withdrawing money from retirement accounts can result in taxable income, so it is advised to consult with a financial advisor.

8. Why Should I Consider a Rollover to an IRA?

An IRA can offer a greater number of investment options to help you pursue your retirement goals. The account can be rolled over tax free to a surviving spouse. Other beneficiaries will be required to distribute assets from the account over a specific time period and distributions will be taxed as ordinary income.

9. Should I Take My Pension as a Lump Sum or an Annuity?

This is a retirement question best answered with the help of a financial advisor. It might sound appealing to take a lump sum but if you do so, you will face some significant tax consequences. Annual payments may spread out the tax load.

Female nurse looking after elderly woman

10. How Much Does Healthcare Cost in Retirement?

During the years you’ve spent working, your employer likely paid healthcare premiums for you. Once you retire, you become responsible for these costs. When you reach the age of 65, you will likely use Medicare, but you can buy additional coverage known as Medicare Advantage or Medigap plans. Healthcare costs are complicated and costs often rise as you age. Working with a financial advisor can help you determine initial costs like copays, premiums, vision and dental care, etc., though potential long-term costs are more difficult to predict.

11. Can Social Security Run Out of Money?

While it has been estimated that the Social Security Trust Fund could run out between 2029-2035, the Trust Fund provides only a part of your monthly Social Security payment. The rest of the money is from payroll taxes that are paid by workers every year, so it is unlikely that you will completely lose your Social Security benefits. With that being said, you will most likely continue to receive Social Security payments for the rest of your retirement, but the amount may change. While it is unknown what degree the amount might change, you are unlikely to see a drastic change in your benefits.

12. What Kind of Investments Do You Recommend for Retirees?

Investments should be coordinated with an investor’s individual need for income, growth of income, safety of principal and liquidity. Only after careful planning should investments be recommended to a retiree. In general, however, many retirees have the need for three kinds of investments: Short term investments like Money Market Investments, CDs and Treasury Bills are useful in meeting needs for cash within the short term. Fixed income investments like municipal and government bonds can meet intermediate needs for income, for periods beyond a year but not more than 8 to 10 years. Long-term investments like real estate and stocks can be used to potentially increase a portfolio and the income it produces in years to come.

13. What Will Taxes Look Like?

This is an important question to ask a retirement planner, as they can help estimate your tax rate in retirement. Certain retirement savings — such as IRA and 401(k) accounts — are taxable. The amount of income you have in retirement could make some of your Social Security benefits taxable as well. Federal and state taxes must also be considered.

Elderly man reading a book

14. What Are My Options for the Money in My 401(k) or Other Pension Plan?

Usually there are four broad choices, each with different advantages and disadvantages:

  1. Leave it invested in the company plan
  2. Annuitize and receive an income for life
  3. Withdraw the account balance, pay taxes and then invest the funds
  4. Rollover to an IRA or other pension fund, paying no taxes and continue to defer the income tax

15. Would Working Longer Be Beneficial?

Working longer can be very beneficial for retirement success. Here’s how it can help:

  • Delay Social Security payments. You will typically receive more in Social Security payments by starting retirement income later in life.
  • More time to save for retirement. The longer you work, the more money you will be able to save for retirement accounts.
  • Improve pension and Social Security estimations. Pensions often look at your three highest earning years, and Social Security will take your 35 highest income years to estimate your monthly retirement benefits. Your working years later in life are often your best earning years as this is when many people have earned seniority and promotions. Working more of these years can improve your Social Security and pension numbers.

16. If I Get a Pension, What Happens if My Former Employer Goes Bankrupt?

Many retirees are protected by an agency of the U.S. government known as the Pension Benefit Guaranty Corporation. If your former employer goes bankrupt, you may still receive pension income, up to a certain amount. The maximum monthly amounts often change, but if your pension is higher than the current amount, you may experience a reduction. Losing pension income can be extremely difficult, but something is better than nothing.

17. What Are My Biggest Financial Risks in Retirement?

For many retired Americans the largest financial risk is the cost of health care, either in hospital, or long-term care provided in a facility or at home.

A number of insurance companies offer contracts that can reduce these risks, but the cost of the insurance coverage can be very high. Prior to retirement the risks and the cost of the insurance should be considered within the total financial planning process.

Mother and daughter hugging

18. Should I Keep My Life Insurance or Cash It In?

The primary use of life insurance is the cash benefit it provides to offset the loss of income that an individual’s family would realize in the event of death of the insured person. This is the reason many people own life insurance.

But what about in retirement? Ask yourself this question. Who loses financially as a result of your death? One very good reason to keep life insurance after your “non-working” years is to compensate for the loss of pension benefits. Perhaps you cannot rollover your pension account and must take payments for life. Many retirees choose to take the higher benefit based only on their life (rather than a reduced payment based on joint life payments) and use the extra income to pay for existing or new insurance to make up the lost payments in the event of their death before their spouse’s death.

19. Should I Pay Off My Mortgage Before Retiring?

Ultimately, it comes down to personal preference. A mortgage interest may reduce taxes for people who itemize deductions. It might also make more sense financially to invest money rather than pay off the debt, if the interest rate is low enough. It’s important to consider how paying off your mortgage will affect your ability to live comfortably in retirement. While it is often a good idea to enter retirement without any debt, it’s best not to take a lot of money out of a retirement account to pay off a home.

20. If I’m Still Young, What Can I Do to Plan for Retirement?

The most important thing you can do while you are still young is to start saving for retirement as early as you can. Living below your means can help you save more money, and help you live on a lower amount in retirement. Also make sure to consider the plans offered by your employer. Ask the HR department at your company about any 401(k), SIMPLE, 403(b), or other plans that are available. Some employers also offer pension plans that are designed to replace some of your income when you retire. All of these will help you save the money you need to live comfortably during retirement.

21. I’m Concerned About the Change That Retirement Will Bring to My Daily Routine. What Can I Do to Prepare Myself for This Change?

While it is important to consider financial issues during retirement, it’s just as important to think about non-financial changes as well. Some things to think about include:

  • Having something to look forward to in retirement.
  • Finding something you find meaningful to do during retirement.
  • Who you will be spending time with.
  • Will leaving your profession cause a change in your sense of identity?

Carefully consider what you will do with your time, who you will see, and what is important to you. Make a weekly schedule of activities and events that you intend to pursue in retirement. Talk things over with your spouse and family and get involved in retirement activities prior to actually retiring.

Consider a “dress rehearsal” by taking a two-week vacation at home and pretending you have retired. Many pre-retirees have found this to be a practical way to find out if they are ready to retire.

22. What Are the Biggest Mistakes Retirees Make?

Unfortunately, some retirees just don’t have a financial plan, which can lead to overspending or underspending as a result.

Ironically, many newly retired workers are too conservative. Our experience has been that some retirees should spend more money in the first few years of retirement and enjoy their health and high energy. They also have a backlog of “to-dos” that they have been wanting to experience like travel, cruise, etc. Often we find that, unless prompted to start enjoying life, some retirees settle into an attitude of “we have to save the money for later.”

Retirement Doesn’t Have to Be Scary

Many people may feel overwhelmed by the retirement planning process, but working with a financial advisor is the best way to ensure you are taken care of during retirement. While the questions above are the most common retirement questions, they aren’t the only things to consider during the retirement planning process. As you start thinking about retirement, consider financial questions to ask a retirement planner that are personal to your needs.

At Dechtman Wealth, we pride ourselves in providing quality financial planning. We always act in your best interest and have a straightforward approach with no hidden costs. We’re here to help take the worry out of retirement planning and answer any additional retirement questions. Visit our website to learn more about our services and how we can best assist you.

Elderly couple sitting on a pier