Spending your later years worrying about your financial situation isn't anyone's idea of a good time -- but it's a fate many seniors experience.
If you don't want to be one of the millions whose life after leaving the workforce is filled with money woes, consider following these three steps to ensure financial insecurity isn't something that you'll ever face.
1. Save a large enough nest egg
Retirement savings will play a crucial role in supporting you during your later years, since Social Security benefits aren't enough by themselves. They'll replace just 40% of preretirement income, and you need about 80% or more.
The bigger your nest egg, the more money it can provide to cover your basic costs. and the less risk of the money running out while you still need it. So when you set retirement savings goals, anticipate needing more than you think you will -- and be sure to earmark money for healthcare expenses and long-term care, which can be some of your largest expenses as a senior.
2. Be conservative in your withdrawal rate
For many retirees, their biggest fear is that their money will run out while they're still relying on it. Setting a safe withdrawal rate can eliminate this concern and ensure you have plenty of funds even late in retirement.
Your withdrawal rate is the amount you take out of your investment accounts. Traditionally, experts advised taking out 4% during your first year of retirement and then determining how much to increase withdrawals each year based on inflation. But there's now a risk of running out of money if you follow the 4% rule because projected future returns are lower than when this rule was created. In addition, many people are living longer.
If you don't want to have to worry about your investment account balance dwindling to nothing, be more conservative in your withdrawal rate. You could opt to take out just 3% per year, for example, or follow the IRS Required Minimum Distribution tables to decide how much to withdraw. Alternatively, if you have a big enough nest egg, you could take out only the interest you earn each year, leaving your principal balance alone.
3. Make sure you have comprehensive insurance
Finally, it's important to be prepared for healthcare expenditures you're likely to incur as a senior. That means researching your insurance coverage options carefully.
If you retire before you become eligible for Medicare, you'll need to maintain coverage with your most recent employer under COBRA -- if that's an option -- or get a policy through your spouse's work or on the individual marketplace. You don't want to go without coverage, even for a short time, as doing so could be catastrophic.
Even after you become eligible for Medicare, you still need to research and understand your options. Traditional Medicare has many exclusions, such as hearing aids, and you're responsible for premiums, deductibles, and coinsurance costs. You may want to add a supplementary Medigap policy to offer more coverage or choose a Medicare Advantage Plan.
By taking the time to get the right health coverage and by making sure you've saved plenty of money and aren't withdrawing too much, too quickly, you can have the financial security you deserve in your later years.