If you’re still in the workforce but nearing your retirement years, you may have more retirement questions than retirement answers. But as you start to unravel this next stage in your life by forming your retirement plan and setting the details in motion, you’ll likely begin to look forward to the day when you can start living your dreams. Deciding on your retirement goals, your plan to finance your retirement and your road map to get there are some of the questions to address.
Questions to Ask Before Retiring
Among the questions to ask before retiring are those that frame your overall retirement plan, such as your personal goals during retirement and your provisions for your family.
What are my retirement goals? It’s hard to plan for retirement until you know what you want to do during your retirement years; otherwise, you may be trying to hit a moving target. Some retirees want to travel the world; others look forward to playing golf every day; and many more will be content to enjoy a quiet life at home away from the rat race of working, perhaps volunteering some time to a favorite charity. Once you define your target goal of what you want to do, you can begin to answer other questions of how to get there.
Do I have an estate plan? If you haven’t already put your estate plan in motion, retirement age is the perfect time to nail down this task. Once you’ve decided whether a will or a trust account is what you want, and you’ve had your attorney take care of the paperwork and legalities, you’ll probably enjoy your retirement years even more.
Age at Retirement
Retirement age is not a one-size-fits-all mandate. Whether you’re planning to take an early retirement, or you picture yourself still working when most of your same-age friends have already retired, shoot for the age that suits you and your situation the best.
When can I retire? Theoretically, you can retire at any age you choose. But like most people, you probably have financial challenges for retiring earlier than your bank account can sustain you. You may also work for a company for which you must work a certain number of years before you’re eligible to draw from your pension. And you may depend on Social Security benefits for some – or all – of your retirement income.
You can also opt for a type of hybrid retirement plan – one in which you retire from full-time work but continue to work part-time. Other options for a semiretirement plan is mentoring younger workers or acting as a consultant to share your wealth of work experience with a company.
Income at Retirement
To fund your lifestyle, hobbies and retirement plans, you need to crunch some numbers to find out if your retirement income will be sufficient.
What income will I have? Your retirement income may come from multiple sources such as Social Security benefits, your workplace pension and investment income. By adding up all the income pieces, and allowing for income tax payments, you can make a fair estimate of your net monthly income and offset it by your monthly expenses to see if you can go for all your goals or if you need to trim the budget a bit.
Some retirement planners estimate that you’ll need to have 60 to 80 percent of your preretirement income to keep your same lifestyle in retirement. This is just a benchmark, however, so you may want to consult your financial planner or tax attorney to see how your numbers stack up against this estimate.
Do I have emergency funds? Just like those in the workforce, financial planners recommend having three to six months of your monthly expenses earmarked for emergencies in an account that you can immediately access. Vanguard recommends allowing for housing, food, health care, utilities, transportation, personal expenses and debt. You don't have to include amounts for unnecessary expenses such as entertainment, dining out, nonessential shopping and vacations.
Social Security and Pensions
Both the Social Security Administration and individual workplace pension plans have different guidelines for the ages at which you’ll receive full benefits.
When should I take Social Security? Although you can receive Social Security benefits as early as age 62, this will reduce your full retirement benefit by 25 percent. And if you continue to work until your full retirement age while receiving Social Security benefits, you’ll pay a $1 penalty for every $2 you make above $17,640 (2019 figures). You may want to consult your financial planner to figure the best age at which to begin receiving benefits.
How do I apply for Social Security benefits? You can apply for Social Security benefits by going to your local SSA office or by completing an application online at SSA.gov. You can also apply for benefits by calling SSA at 1-800-772-1213.
How much will I receive from my pension plan? A visit to your employer’s human resources department or a call to your plan administrator will confirm how much income you’ll receive from your pension plan. Questions to ask your pension administrator include when you’ll be vested in your pension plan and what amount of matching funds (if any) your employer has contributed.
Income Tax at Retirement
Your financial planner or tax attorney can help you navigate the waters of ever-changing tax laws to project your tax liability at retirement, which depends on factors such as your age at retirement and the type(s) of your income.
Will I pay income tax? The type of your income is a big influencer on whether you’ll pay income tax. For example, if you have a traditional 401(k) or IRA, your withdrawals at retirement (called distributions) are taxable. But if you have a Roth IRA, you paid income tax before you made contributions to your account, which means you will not pay income tax when you make qualified distributions. There’s also a distinction between federal and state income tax, with state laws varying from state to state, so this is another reason to check with your financial planner.
Insurance at Retirement
A big hot button for retirees is making sure they have sufficient insurance coverage when they leave the workforce.
Do I have sufficient health insurance? Most taxpayers qualify for Medicare at age 65, but you’ll have to apply for it because it’s not an automatic benefit. If you retire before this age, you’ll need a health insurance policy in place to cover medical costs. Even after you’re 65, Medicare may not be sufficient to cover your health needs, so a supplemental policy may be in order.
When you leave the workforce, your employer’s Consolidated Omnibus Budget Reconciliation Act coverage may tide you over in the short-term, but it may only cover an 18-month period. Plus you’ll have to shoulder the full cost of coverage instead of the reduced employee portion you paid while you were employed.
If you’re married, you may be covered under your spouse’s health plan if your spouse is still working.
Do I need life insurance? This is another question that doesn't have a pat answer for everyone. The primary function of life insurance is to provide financial protection for your family from loss of income when a primary wage earner passes away. But at retirement, when your earned income is likely replaced by unearned income, your life insurance needs may shift. And like other retirement questions you need to have answered, your financial planner or tax attorney can help guide your life insurance decision.
Investments During Retirement
Whether you’ve been an investor during your working years or not, you’ll have to decide whether you want to invest during your retirement years.
Should I invest after retirement? If you have a track record as a conservative investor whose comfort level didn’t include making risky investment decisions, you may not change your investment course at all, or you may simply make a few little tweaks to your portfolio. But if your investment history is characterized by taking aggressive risks, you may decide to scale back and make more conservative decisions. At retirement, you do not have the luxury of time to lose everything and start over again as you did when you were younger.
CNN Money recommends a conservative posture by investing in dividend-paying stocks in stable companies with proven track records.
Staying Put or Moving
Housing expenses sometimes cut the biggest dent in a monthly budget. Even if your home is paid for by the time you retire, you may be facing the question that many retirees ask about whether to move.
Should I move? Your decision may be guided by many factors, including moving to be closer to family members, such as children and grandchildren, your housing costs, your proximity to health care facilities, property taxes and even the climate. Even if you’ve been accustomed to a cold climate all your life, it may not be a good fit for you as you get older.
Should I sell my house? This question typically goes hand-in-hand with the question about moving or staying where you are. Some considerations for selling include the size of your house and the amount of equity you have in your home. You may no longer need a large house, particularly if all your kids are grown and gone, especially since a larger house also carries larger utility costs than a small one. And if you have a lot of equity in your home, you may be able to sell it, downsize and still make a profit on the transaction.
Financial Planning for Retirement
You may have stuck to a methodical financial plan during the course of your working years, or you may be a latecomer to the financial planning table. Either way, retirees can benefit from having a solid financial plan in place during their retirement years.
Should I hire a financial planner? Although your neighbor, best friend or family member may be well-intentioned, you may want to hire a certified financial planner to help you put together a retirement financial plan. Financial planners may want you to fill out a retirement lifestyle questionnaire to evaluate your retirement needs so they can more comprehensively put together a custom plan designed just for you.
Visit CFP.net to find a nearby CFP professional through a search using your ZIP code. CFPs must pass a comprehensive certification examination, pass the CFP Board's Fitness Standards for Candidates and Professionals Eligible for Reinstatement and abide by the CFP Board's Code of Ethics and Professional Responsibility and Rules of Conduct.
- Topics · Customer Self-Service
- Vanguard: What's the Right Emergency Fund Amount?
- U.S. News and World Report: 13 Most Frequently Asked Retirement Questions
- Attention Required! | Cloudflare
- CNN Money: 4 Questions to Ask Before You Retire
- Financial Advisors & Planning Professionals | CFP - Let's Make a Plan
- CFP: Find Your CFP Professional
- IRS: Life Events That May Have Tax Consequences for Seniors and Retirees
- CNN Money: Get Ahead of Your Estate Planning
- AARP: Pension Plan Retirement Options
- Kiplinger: How Much Cash You Really Need
- U.S. Social Security Administration: Retirement Planner -- Applying for Medicare Only
- U.S. Social Security Administration: Retirement Planner -- Benefits By Year of Birth
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.