Retirement is an exciting chapter in life, but it's important to ensure you're as prepared as possible. Everyone's situation will be different, so there's no one-size-fits-all answer as to when you should retire or how much you should save. That said, there are a few questions you can ask yourself to gauge whether you're really ready to retire.
1. How long will your savings last?
There's no set amount as to how much you should save for retirement. Some people will need well over $1 million to retire comfortably, while others may be able to get by on much less. Rather than using the amount you have saved as your barometer, then, think about how far those savings will go.
For example, say you have $500,000 saved for retirement -- a hefty amount by most workers' standards. But if you expect to spend, say, $60,000 per year, those savings will only last around eight years -- and that's not even accounting for adjustments in inflation during that time.
Of course, Social Security benefits and other sources of income, like a pension, can help. It's also impossible to plan for every single expense in retirement. But if you expect to spend several decades in retirement, it's important to estimate how long, realistically, your savings might last.
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2. How much will you rely on Social Security?
Social Security benefits can help bridge the gap between what you have saved and what you need to retire comfortably. However, they were never designed to be retirees' primary source of income.
The average retiree collects roughly $1,600 per month in benefits, according to the Social Security Administration. To see how much you can expect to receive, check your online statements through your mySocialSecurity account.
Keep in mind, too, that the age at which you begin claiming will have a significant impact on your benefit amount. If you file before your full retirement age (FRA), your monthly payments will be permanently reduced.
Once you know approximately how much you'll receive from Social Security, it will be easier to determine whether your savings will be enough. If you find that you might be relying too heavily on your benefits, it may be wise to strengthen your nest egg before you retire.
3. Have you considered the hidden expenses?
When you consider how much you'll be spending each year in retirement, you may have already accounted for general expenses. And in many ways, your retirement expenses might not look drastically different from what you're currently spending.
However, there are also some costs that aren't as obvious. Healthcare expenses, for example, can increase as you get older. Medicare isn't free, and the average 65-year-old couple can expect to face roughly $315,000 in out-of-pocket healthcare costs, according to a 2022 report from Fidelity Investments.
Taxes are another expense to consider. If you're saving in a 401(k) or traditional IRA, you'll owe income taxes on the amount you withdraw each year. Depending on where you live and how much you're withdrawing, that could amount to thousands of dollars per year.
You won't be able to plan for every single expense in retirement, and that's OK. But if you can truthfully answer all three of these questions, you can head into your senior years as prepared as possible.
