Far too many people are not adequately preparing for retirement. In fact, one-quarter of all Americans have not saved anything for retirement. An even greater number does not have enough retirement savings to maintain their current quality of life.
Preparing for retirement requires careful planning and calculation. You need to set savings goals and have a retirement age to strive for.
Read on for the ultimate guide on when to retire. Explore topics such as the cost of living in retirement and where to retire to.
Income
Perhaps the most important question to consider is where you are generating income from. Some jobs offer defined benefit plans in the form of a pension. Here, an employee receives recurring income based on factors such as length of service.
Unfortunately, many American workers no longer have access to pension plans. Just 4% of current American workers are relying on a defined benefit program alone.
A 401(k) or Individual Retirement Account (IRA) are other sources of income. These are savings accounts in which employees defer a portion of their income. Many employers match their workers’ contributions up to a certain percentage.
Retirement savings contributions are invested in stocks, bonds, and money markets. This way, the savings account continues to grow and generate additional income for the retiree.
Social security provides another source of income. You pay into this federal entitlement program each paycheck during your career. Social Security recipients can start claiming benefits at age 62 or older.
Expenses
You also have to consider expenses when retiring. In most cases, you are bringing in less money than you did before retirement. To offset the lost income, it is necessary to cut expenses.
Where to retire is a primary question for many retirees looking to reduce their expenses. Many retirees choose to live in a southern state with a lower cost of living. States like Florida do not have a state income tax and residents can keep more of their income.
There are other practical ways to cut your expenses. Some retirees downsize their homes or drop down to one vehicle.
Health Care
Health care is another consideration for retirees. The vast majority of Americans receive their health benefits from their employer. Without a job, retirees find themselves without the benefits they are accustomed to.
Medicare provides some coverage for hospital visits and doctor’s appointments. However, it does not cover major expenses such as assisted living. Retirees find themselves reviewing the benefits of assisted living but are not sure they can afford it.
The solution for many is to purchase additional coverage via Medicare Advantage. This option requires budgeting additional money for your increasing medical expenses.
The Ultimate Guide for When to Retire
You are now ready to start developing your retirement plans. Of course, creating a steady stream of income is amongst the most important steps. Also, it is important to consider expenses and the cost of living.
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