4 Financial Questions to Ask Yourself Before Deciding to RetireTrevor Gerszt
You’re headed into your mid-60s and thinking that the time has come to retire. You’ve worked hard for most of your adult life. Now it’s time to relax and enjoy the fruits of your labor. But are you financially ready for retirement? Here are four questions to ask yourself before taking that big step.
Can You Support Yourself and Your Family Without Working?
This is the most basic question to ask. Do you have enough money saved up to live comfortably once you leave your job? The average American couple in their late 50s or early 60s has only around $17,000 in retirement savings. Depending on your current income and the standard of living you want to maintain, that’s barely enough to cover 6 months without working.
So how much do you need to save in order to live comfortably during your retirement? That’s a more difficult question than people realize. One rule of thumb is, in order to live modestly once you leave work, you’ll need to have saved up approximately 70% of your current, pre-retirement income, for each year of your retirement. So if you make $50,000 a year, then you’ll need about $35,000 per year once you retire.
There are two problems with this, however. First of all, it doesn’t take inflation into account. Odds are, 10 or 15 years from now, $35,000 won’t go nearly as far as it does today. The longer you live after leaving work, the harder it will be to live on the annual allowance you’ve calculated. If you haven’t factored inflation into your savings, you’ll run out far sooner than you’re anticipating.
Which brings us to the other problem: How long will you live after you retire? What if you live longer than that? Most people tend to underestimate their post-retirement lifespan. Which means that once they pass the age at which they had planned on dying, their nest egg will be depleted, and they’ll have no means of supporting themselves for the remaining years of their life.
So with that in mind, how much do you have in your retirement savings? Will it be enough to support you and your family for the next 20 or 30 years?
How Much Are You Planning to Rely on Social Security?
You may think that your monthly social security payments will be able to supplement any deficiency in your savings and provide you with enough to live on. But the truth is, social security isn’t especially reliable either.
First of all, if you retire before the age of 66, you’ll only receive a portion of your benefits, to make up for the extra time that the money needs to last. If you start collecting at 62, that’s only 75% of the full monthly benefit. If you wait until 65, you’ll get 93.3%—most of the money, but still not all of the already meager amount.
In addition, unless we make major changes to the current system, our social security fund will be completely depleted by 2034, at which point everyone’s benefits will be greatly reduced (about 79% of their current benefit), as the amount paid out each month will only be able to equal the amount being paid in over the same amount of time.
What About Healthcare?
When you turn 65, you qualify for Medicare, which provides low-cost healthcare options for senior citizens. However, Medicare doesn’t cover everything. You’re responsible for 20% of the bill for things like doctors’ visits or lab work. That doesn’t seem like much, but over time it adds up—especially if you require more care as you get older.
If you’re 65 years old and retire right now, you can expect to pay approximately $265,000 out of pocket on medical expenses over the next 20 years—including everything from prescription drugs to nursing home costs. Furthermore, as inflation rises and healthcare costs go up, that number is continuing to rise.
What About Emergencies?
Even if you have saved up enough money to live on through your retirement, and you’re in reasonably good health and can avoid major medical expenses (for a while, at least), there’s something else to factor in: the unexpected. What will you do in the case of a major financial emergency?
You may need a lifesaving surgery or other expensive medical procedure. You may lose your house in a natural disaster and have your insurance claim denied—or at the very least, be forced to pay a significant deductible. Someone could sue you and win a large settlement that you can’t afford to pay. You never know what might happen. But you need to be prepared with a way to pay for it.
Most people’s instinct under these circumstances is to dip into their savings: their 401(k) or other investments. This is a terrible idea. Especially if you’re already retired and living on that money, depleting it will mean an even bigger financial disaster in the near future. But even before you retire, don’t touch your investment portfolio or use it as an emergency source of cash. You’re only causing severe hardship for your future self.
What to Do
Retirement is a lot more difficult now than it was even 10 or 15 years ago. Getting together enough money to live on for the next couple of decades is seemingly more and more like an impossibility. So how do you maximize your retirement savings now and make sure that when you need it, you have enough put away to live modestly but comfortably? You need a safe haven, such as a gold IRA.
As a physical asset, gold isn’t subject to inflation, the way many other investments are. It also resists market volatility, so that even if your stocks plummet, you still have something to fall back on, and keep you from losing everything.
Gold gradually appreciates over time, so that if you’re prudent with your savings, then by the time you retire, you can have a sizable nest egg put away. A gold investment will make it easier to support yourself and your family once you leave work, and alleviate many of the fears associated with retirement, so you can rest easy.