10 Retirement Rules to Live By

One of the biggest mistakes you can make in life is not preparing for retirement. You don't want to get whacked by any unpleasant financial (and nonfinancial) surprises, so read on -- and enter retirement well informed and ready.

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First off, be prepared nonfinancially. Know that many new retirees find themselves bored and restless, having lost the routines of their workdays and even the socializing that they did at work. You'll need to be socializing in retirement, so plan to keep busy with some activities such as bridge groups or volunteering or a bowling league. You might even want a part-time job for a while, just to get yourself out of the house and earning a little extra spending money.

ALSO READ: 3 Ways to Get Your Retirement Savings Back on Track Before It's Too Late

It's critical to plan for your retirement financially, too. Take some time to figure out how much you'll need to retire with, and how you'll get there. You'll also have to determine how much you need to sock away each year, and how to invest that money, too. The table above can give you an idea of what's possible.

It's vital to plan for significant healthcare costs in retirement, because it's likely to cost you a lot. Consider, for example, that a healthy 65-year-old couple retiring in 2021 will spend an average of $662,156 on healthcare, including premiums and out-of-pocket expenses, per a 2021 study by HealthView Services. Even if you only spend half of that, it's a lot of money. (Fidelity Investments offers a lower estimate, of $295,000.) One way to keep healthcare costs down is to try to stay healthy and fit.

Next, know how much money you can expect from Social Security -- so that you're not unpleasantly surprised. The average monthly retirement benefit, for example, was recently just $1,547 -- or about $18,500 per year. If your earnings were above average during your working life, you'll get more than that -- but it will still likely be far less than you'd want in total retirement income. You can get a personalized estimate of your future benefits by setting up a "my Social Security" account.

ALSO READ: These Social Security Myths Could Sink Your Retirement

IRAs come in two flavors -- traditional and Roth. The former gives you an up-front tax break, reducing your taxable income for the year that you contributed to your account, and the latter offers tax-free withdrawals in retirement. For 2021, the IRA contribution limit is $6,000, plus an additional $1,000 for those 50 or older. Socking away $6,000 or $7,000 per year can result in a valuable account that's quite useful in retirement. Note that the contribution limits are increased every year or several years.

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We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

A 401(k) account can also help you build a war chest for retirement. 401(k)s, like IRAs, come in traditional and Roth varieties. A key difference, though, is that 401(k)s have much heftier contribution limits. For 2021, the annual contribution limit is $19,500, plus $6,500 for those 50 and older, bringing the total to $26,000 for those folks. Once you're using a 401(k) account, aim to avoid common 401(k) mistakes, such as borrowing from the account.

Living in retirement, you'll need income beyond Social Security benefits. You might get some by shaving off shares of stock from your portfolio, but if you've loaded that portfolio with solid dividend-paying stocks, you can collect a lot of income without having to sell any or many shares. Healthy dividend payers will keep paying you even when the stock market slumps or stalls, and with a portfolio of, say, $500,000, and an overall average yield of 4%, you're looking at $20,000 in income annually -- about $1,667 per month, on average.

ALSO READ: 3 Moves to Ensure You're a Retirement Multimillionaire

It's also important to think about how much of your nest egg you'll have to cash out each year in retirement. You want as much as you can get, but you don't want to run out of money before you die. One classic piece of advice is to take out 4% in your first year and adjust for inflation thereafter. Some are suggesting 5%, though, and much depends on your particular situation when it comes to your perfect retirement withdrawal rate.

As you get older and older, you'll have less interest in or ability to manage your money, making annuity income especially handy. Consider spending some of your nest egg on one or more fixed annuities, which can deliver nearly guaranteed income for the rest of your life.

The more you read and learn about retirement-related issues, the better decisions you can make and the better retirement you might have. For example, you might want to read up on reverse mortgages, in case they might be a good idea for you. Or brush up on smart Social Security moves.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

The more you do starting now, the more financially secure your future will be. Make sure you're saving and investing effectively for retirement, and that you have a plan you stick to. Here's a good first move: If you're not making use of an IRA and/or a 401(k) account, look into doing so.

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