The closer you are to retirement, the more curious you’ll be about how this specific phase of your life will play out—musings that will undoubtedly feature several questions. In this post, we’ve compiled answers to some of the most common retirement queries to help aid your journey. Let’s dive in…

How much money do I need to retire?

You can rely on various rules of thumb when it comes to this question, including the “80% rule”—which states that 80% of your pre-retirement income is necessary to sustain the same lifestyle after you stop working. However, how much money you need to retire ultimately depends on various factors including the lifestyle you plan to live.

That said, those seeking a target number of some sort should know the most recent U.S. Bureau of Labor Statistics Consumer Expenditure survey revealed annual spending by retiree households—run by someone aged 65 or older—averages $57,818 (or $4,818 a month). Also keep in mind that costs will only continue to increase as time marches on (e.g., average retiree household spending rang in at approximately $3,800 a month back in 2016); the further you are from retirement, the higher this threshold will be.

Which specific actions should I take, say, five or so years before retirement?

Generally speaking, you can take several steps to better prepare for retirement. One such example? Reducing debt, particularly high-rate debt such as credit cards and housing debt (including your mortgage). This action is critical since the average retiree household spends an average of $1,697 on monthly housing expenses.

You should also continue to save by maximizing your retirement funds. For example, the IRS allows you to make catch-up contributions—additional contributions beyond standard annual limits to your 401(k)s and IRAs—when you turn 50.

Eliminating any unnecessary risk in your investments (i.e., dedicating too much of your portfolio to stocks) is also a good idea as you may lack the luxury of awaiting a market bounce-back after the next dip—meaning you may be forced to sell investments at a loss should you need the money, eating into your retirement savings.

Developing a vision for your lifestyle is another way to prepare for retirement, specifically where you want to live and how you want to spend your days. Though this may take some time and a dedicated effort on your part, doing so will help you get a better feel for your living expenses during retirement.

Finally, if you haven’t already, get going on an estate plan: ensuring your account beneficiaries and policies are up to date and that your will and medical directives are complete, at the very least.

Should I take a lump sum pension offer?

If you’re fortunate enough to have a pension (recent Bureau of Labor of Statistics data shows that less than 15% of private industry workers enjoy access to one), you may be offered a lump sum payout in lieu of future monthly payments—a move that may make sense if you believe you can make more money investing on your own, want to protect your legacy, are in poor health and need the money, and/or are concerned about your employer’s financial situation (particularly if your pension lies with a religious institution).

If you’re married, worried about retirement savings, and/or are not a disciplined saver, however, you probably shouldn’t take a lump sum offer.

How will I pay for healthcare expenses in retirement?

Fidelity recently reported that the average 65-year-old couple would need to spend almost $315,000(!) in after-tax money to cover healthcare expenses in retirement: a number that’s even more alarming when you consider a 2010 Boston College Center for Retirement Research (CRR) study that claimed this same demographic can expect to spend $197,000 over their lifetimes (with a 5% chance this could exceed $311,000). Neither estimate accounts for long-term care expenses, which certainly aren’t insignificant.

The good news is that with proper planning, you can ensure healthcare expenses won’t eat up too much of your savings. Taking advantage of catch-up contributions, delaying Social Security benefits, planning for long-term care, considering a health savings account (HSA), understanding your Medicare options, and investing in a life insurance policy with living benefits (or those that allow you to build cash value) are just some of your options in this respect.

Should I buy an annuity?

Though not for everyone, annuities are sometimes a reasonable choice in specific situations.

For example, if you’re a conservative investor seeking financial confidence via a guaranteed source of income for the rest of your life and/or worried about running out of money during retirement, an annuity can help you.

Other reasons to purchase an annuity? To protect your legacy (assuming you have a death rider, you can pass your annuity to one or more named beneficiaries) or if you’ve already maxed out other vehicles and want to continue funding your retirement.

When should I claim Social Security?

The age at which you decide to collect Social Security will determine the amount of your monthly benefit; choosing to receive benefits before you reach full retirement age (when you’re entitled to 100% of your Social Security benefits) will result in a permanent reduction to the amount you receive.

More specifically, Social Security benefits rise by approximately 7% each year between age 62 and your full retirement age (and approximately 8% each year between your FRA and age 70).

Check out our article on how to maximize your Social Security benefits to help guide your decisions in this respect.

Will working after I reach full retirement age reduce my Social Security benefits?

If you’re still working when you reach your full retirement age, your corresponding earnings won’t reduce your benefits no matter how much you make.

However, if you work prior to full retirement age, the dollar amount of your monthly Social Security check is sometimes temporarily reduced if you make more than the yearly earnings limit set by the Social Security Administration.

How do I enroll in Medicare?

If you’ve received Social Security or Railroad Retirement Board benefits for at least four months before age 65, the government will typically automatically enroll you in Medicare Part A and Medicare Part B—with your Medicare card likely arriving in the mail with instructions three months before your 65th birthday.

All other eligible recipients have a seven-month window to enroll in Medicare per an enrollment period beginning three months before you turn 65 and ending three months after your birthday month. You can apply for Medicare benefits online or over the phone.

If you miss your initial enrollment period, you can sign up during Medicare’s general enrollment period (January 1–March 31)—with coverage beginning July 1.

Is a reverse mortgage worth it?

A reverse mortgage is sometimes a good option to help address financial challenges, especially for those struggling to keep up with expenses during retirement. If you need cash but can’t afford the monthly payment accompanying a home equity loan or line of credit (and are comfortable leaving less to your heirs when you and your spouse pass away), a reverse mortgage is worth considering—but only after you’ve exhausted all other options.

Should I downsize my home?

Many pre-retirees assume that downsizing their home will help finance a good chunk of their retirement. Unfortunately, the reality is that homeowners often reap less than what they had originally anticipated in considering this plan. To avoid potential pitfalls of downsizing your home, you’ll need to do your homework—which includes properly assessing its value (not just relying on websites) and understanding all costs associated with selling.

How should I spend down my retirement savings?

Unfortunately, a one-size-fits-all approach does not exist with respect to determining how much you can spend during retirement. That said, one oft-used retirement spending rule of thumb is known as the “4% rule.” This states you should withdraw no more than 4% of your assets during the first year of retirement and then subsequently adjust withdrawals for inflation on an annual basis thereafter.

In theory, adhering to this rule allows your investments to sufficiently grow and thus prevents you from depleting your funds too quickly over a 30-year retirement period. Most financial experts agree, however, that you should only rely on this as a general guideline rather than a textbook rule.

What are RMDs, and when do I need to start taking them?

Required minimum distributions (RMDs) are the minimum amount of money one must withdraw from specific tax-deferred retirement accounts beginning at age 73 (a stipulation that will climb to age 75 in 2033).

More specifically, RMD rules apply to various employer-sponsored retirement plans including 401(k), 403(b), profit sharing, and 457(b) plans. The mandate also applies to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs as well as Roth IRAs (following the owner’s death).

While those impacted are required to take their RMDs by December 31 of each year, a few options are available with respect to taking your very first one (e.g., if you turn 73 in 2025, you can do so by either December 31, 2025 or April 1, 2026). No matter which option you choose, however, you’ll need to take your second RMD by December 31, 2026.

If my employer doesn’t offer a retirement plan, how else can I save for retirement?

If you happen to lack access to a 401(k) or other employer-sponsored retirement plan, fear not! You have many alternatives to choose from, including:

IRAs. These accounts, designed specifically to help fund your retirement, allow you to invest in many different types of assets including stocks, bonds, ETFs, and mutual funds. Although many types of IRAs are available, the two most common are traditional and Roth IRAs: each allowing you to contribute up to $7,000 a year ($8,000 if you’re aged 50+).
SEP IRAs and solo 401(k)s. If you’re self-employed or own a small business, these two options can help you sock away even more for retirement. As of 2024, you can contribute up to either 25% of employee/owner compensation or $69,000 (whichever is less) to a SEP IRA and $69,000 ($76,500 for those aged 50+) to a solo 401(k).
Brokerage accounts. While this alternative doesn’t feature the same special tax benefits as IRAs and 401(k)s, you can invest as much money as you want in this case given a lack of contribution limits—making this a good option once you’ve maxed out all others.

What are some common (and unpleasant) financial surprises retirees often encounter?

While it’s impossible to plan for every scenario, our research isolates the following gaffes as the most common stumbling blocks that often catch retirees by surprise:

· Assuming you’ll have minimal home repairs. Old homes aren’t designed with old age in mind, and even in new homes, you’re unlikely to avoid repairs and renovations.

· Waiting to buy a Medigap policy. Should you decide Medigap is right for you, be sure to sign up during your initial Medicare enrollment period as insurers may charge you more (or even deny you coverage) based on your health status if you wait.

· Lacking familiarity with IRMAA. Medicare imposes surcharges (known as “IRMAA”) on higher-income beneficiaries. These are calculated based on tax returns reported from two years prior: meaning your 2024 income determines your IRMAA in 2026, your 2025 income determines your IRMAA in 2027, and so on. For those unaware of IRMAA, the two-year lag can create unpleasant surprises when they first enroll in Medicare—especially if their income declines substantially when they retire.

How will I know if I’m mentally ready for retirement?

Many new retirees are often surprised to learn that in addition to a lot more time on their hands, they also face negative psychological effects they hadn’t anticipated upon retiring (such as feelings of uselessness and a lack of purpose); it’s in fact estimated that for roughly a quarter of retirees, life after work involves isolation and a loss of direction.

Having a shared vision about where to retire and how to spend your free time with your spouse, planning ahead to reduce tension (by engaging in conversations and setting schedules) if you retire at different times, opting for a slower transition to retirement, and remaining active (to help prevent inferior health outcomes) are just some steps you can take to help mentally prepare.

The bottom line on retirement FAQs

There’s so much to consider when it comes to retirement, and answers to the most popular questions naturally vary based on individual circumstances. That said, enlist the help of our “Am I On Track” service to learn if you’re where you need to be for retirement (and actions to take if you’re not!)—gaining these insights and so much more for just a small investment.

Have questions? Schedule a FREE Discovery call with one of our CFP® professionals.

Common Retirement Questions, Answered