Retirement is a period of life many people come to enjoy. For others, however, it can be an extremely stressful stage of life. If you'd rather not land in the latter scenario, here are a few moves you can make today to lower your chances.
1. Build a healthy nest egg
Though Social Security will play a role in helping you manage your expenses in retirement, those benefits won't be enough to live on. Rather, you'll need independent savings to ensure that you can cover your bills, and the sooner you begin setting money aside, the more financially secure you're likely to be when you're older.
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The following table shows what sort of nest egg you might accumulate depending on your total savings window:
|
If You Start Saving $400 a Month at Age: |
Here's What You'll Have by Age 70 (Assumes a 7% Average Annual Return): |
|---|---|
|
25 |
$1.37 million |
|
30 |
$958,000 |
|
35 |
$663,000 |
|
40 |
$453,000 |
|
45 |
$303,000 |
|
50 |
$197,000 |
TABLE AND CALCULATIONS BY AUTHOR.
As you can see, you don't necessarily need to max out a 401(k) or even an IRA for a shot at a comfortable retirement. You just need to save consistently and from as early an age as possible.
Furthermore, you'll want to invest your savings in a manner that maximizes growth, and in this regard, stocks are truly your friend. Though more volatile than bonds, stocks tend to deliver significantly higher returns. In fact, the 7% used above is actually several points below the stock market's average.
2. Devise a Social Security filing strategy
Though your Social Security benefits are based on how much you earned during your top 35 working years, the age at which you first file for them can cause your monthly payments to shift. You actually get an eight-year window to claim benefits that begins at age 62 and closes out at 70. Somewhere in the middle is your full retirement age, or FRA, which is either going to be 66, 67, or 66 and a number of months, depending on the year you were born.
The good thing about waiting until FRA to take benefits is that it allows you to collect your monthly payments in full, whereas filing at any point prior will result in an automatic benefits reduction. However, there are some circumstances under which filing early makes sense.
Furthermore, if you hold off on taking benefits past FRA, you'll boost your payments by 8% a year up until 70. That's why 70 is typically considered the latest age to file for Social Security, even though you're technically not required to sign up at that point. No matter what age you decide to file, be sure to understand the consequences involved, because that single move could impact one of your most significant income sources for the remainder of your life.
3. Identify some backup income streams
Once retired, there's a good chance you'll get most of your income from savings and Social Security, but it never hurts to have a backup source for peace of mind. That source could be a part-time job, a hobby you choose to monetize, or a home you're willing to rent out. The key, however, is to know that you have options for generating extra cash if retirement ends up being more expensive than you imagined or your portfolio value declines due to poor market conditions.
4. Get long-term care insurance
Though healthcare is expensive in its own right, it's the notion of paying for long-term care that often causes seniors the most anxiety. According to Genworth Financial's 2017 Cost of Care Survey, the average assisted living facility in the country costs $45,000 a year, while the average nursing home costs $85,775 a year for a shared room and $97,455 a year for a private one. And these are just averages; in some parts of the country, you'll spend a lot more.
That's why it's wise to sign up for long-term care insurance when you're younger -- ideally, during your 50s, but in some cases, you might snag a decent rate in your 60s, as well. Having a policy in place to defray some of the costs you might eventually face is a good way to give yourself one less whopping expense to worry about, and since 70% of seniors 65 and over are projected to need long-term care in some shape or form, it could end up being a very worthwhile investment.
5. Figure out how you'll spend your time
There's a reason retirees are 40% more likely to fall victim to depression that those who are employed on a full-time basis: Having too much free time on your hands could turn an otherwise pleasant period of life into one extended bout of anxiety and boredom. That's why it's crucial to have a plan for filling your time in retirement before you actually leave your career behind. So map out some activities ahead of time, or even create a detailed schedule for your first year or two of post-work life.
Once you get used to the idea of not having a job to go to, you can ease up and leave your calendar more open. But it definitely pays to go into retirement with a solid set of plans.
The more thorough you are in preparing for retirement, the greater your chances of enjoying it fully. Take the above steps and you'll be setting yourself up for the positive, fulfilling experience you deserve.
