Retirement is one of the biggest milestones you’ll experience in life. You probably already know how you want to spend your days of freedom, but it’s important not to rush into them. If you want your retirement to last, you need to make sure you’re financially ready. Here are three questions you ought to know the answers to before you quit the workforce for good.
1. What’s my retirement withdrawal strategy?
Retirement means living off of your savings for an undetermined amount of time. This makes it a challenging goal to save for, but those who do best are the ones who have a solid withdrawal strategy in place that aligns with their goals.
Image source: Getty Images.
You may have heard of the 4% rule. This says that you should withdraw 4% of your retirement savings in the first year of your retirement and then adjust this amount for inflation every year thereafter. Ideally, it’s supposed to help your money last 30 years. But it doesn’t always pan out. It also doesn’t take into account that some retirees spend more in the early years of their retirement and less as they age.
People are also reading…
Because of these shortcomings, people have come up with several alternative withdrawal strategies over the years. One is the 3% rule, which is the same as the 4% rule, except you start by only withdrawing 3% of your retirement savings.
Others budget extra money for the early years of their retirement so they can travel or spend more on hobbies and then plan to get by on less as they age.
There is no obvious right answer when it comes to how to ration your retirement savings, but it’s important to have some kind of strategy in place before you retire. Otherwise, you risk running out of money prematurely.
2. How much will I get from Social Security each month?
Your Social Security benefit will probably form an important part of your retirement budget, so you need to have an accurate idea of how much you’ll get from the program. The simplest way to do this is to create a my Social Security account. This gives you personalized estimates of your monthly benefit at various starting ages based on your work history.
If you planned to just sign up for Social Security once you retire, you may want to rethink that. Every month you delay Social Security increases your checks until you reach the maximum benefit at age 70. Those who live into their 80s or beyond usually get …….