How to Prepare for Retirement

Will you be ready to retire when the time comes? Much will depend on your expected lifestyle and sources of retirement income. So, the real question is, “Will you have enough money to cover your living expenses for the rest of your life?"

Here's where some of your potential retirement income will come from over the next several decades:

Social Security Benefits

The longer you wait to tap into your Social Security benefits, the higher your monthly payment will be. While you can access funds as early as age 62, wait until age 70, and you’ll likely fare much better than someone who chose early retirement.

The 4% Rule

For many Americans, Social Security benefits alone are not enough to cover even the most frugal budget. Retirees need to have other ways to cover their living expenses.  Savings and investment accounts will likely make up the lion’s share of your retirement income.

This 4% retirement rule states that you should plan on withdrawing 4% of your savings the first year and adjust upward for each subsequent year to keep up with inflation.

Health Insurance Costs

Did you contribute to a health savings account during your working years? This move alone can help keep costs down since you can draw on these funds to cover medical expenses throughout retirement. Medicare and Supplemental Medical Insurance are available after age 65, but that doesn’t mean you should rely on them to cover all of your medical expenses.

The cost of healthcare during retirement is likely to be higher than expected. Even with Medicare benefits, seniors can expect to pay thousands during retirement. This number might be even higher if you have a chronic health issue, are overweight or smoke. Improve your health to keep costs down.

For more info on saving for retirement, see our post, "Are You Ready for Retirement?"

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