PREPARING FOR RETIREMENT

Where to Start?

Begin your retirement preparedness checklist by answering questions in the brochure. Download the brochure and checklist by using the button below.

Take a close look at your current expenses. Some will go away when you retire, such as commuting costs, buying lunch every workday, dry cleaning bills, and contributions to birthday or other gifts for co-workers.

Others may not change, such as housing costs, auto loans, and groceries. Still others will go up, or be new expenses, such as hobbies, more travel and entertainment, and additional costs in your new location if you move.

Outline how each of those expenses will likely change upon retirement, and prepare a budget. What is the net effect? Determining that will be very helpful in developing a better picture of your finances in retirement.

Verify income sources

Learn what distribution options are available for your retirement plan account. Many plans provide for full or partial withdrawals, leaving your balance in the plan, and rolling over your balance to an IRA. Find out your plan’s rules by reading all plan booklets and talking with your benefits representative in Human Resources.

You may also have other retirement or pension plans that would provide income. Again, check with your Human Resources office if you are not sure. Also, if you have changed companies, remember to check with past employers to see if you have vested retirement plan account balances that were left behind.

IRAs are also a common source of funds during retirement. Clarify the types of IRAs you have (traditional, Roth, etc.) and the rules for making withdrawals.

Finally, look closely at your options for receiving Social Security benefits.

Source: Social Security Administration

• Your Social Security card or proof of your Social Security number
• Your birth certificate or other proof of your age
• Information about the home where you live, such asthe mortgage, lease, and landlord’s name
• Tax return or W-2 forms, payroll slips, insurance policies and other information about your income and the things you own
• Proof of U.S. Citizenship or eligible non-citizen status
• Your checkbook or other papers that show your bank, credit union or financial institution account number so you can have your payments deposited directly into your account.

Calculate how much income you’ll replace

The rule of thumb for many years has been that you should plan to replace 75%–100% of your pre-retirement income to maintain your standard of living in retirement.⁴ But, recent research by Hewitt Associates reveals that this target range may be outdated and much too low.

When inflation and rising health care costs are considered, the Hewitt researchers predicted that workers will need to replace, on average, 126% of final pay upon retirement.

Whether you use the 75%–100% target or a higher number, carefully consider how all of your sources of income will work together to replace your pre-retirement income.

⁴Kmotion Research, 2023
⁵The 2022 Retirement Confidence Survey, ©2022, Employee Benefit Research Institute and Matthew Greenwald & Associates

Of the various sources of income, what share do Social Security benefits generally represent? Social Security is about 37% of income, on average.

Inflation is the rate at which prices of goods and services is rising, and, consequently, purchasing power is falling. After you retire, you will probably be living on a fixed income. So remember to take inflation into account when you look at your expenses in retirement. Unfortunately, the cost of basic necessities will likely continue to rise.

Here is a brief perspective on the rising cost of living overtime (assuming a 3% rate of inflation).

Source: Kmotion Research, 2023.
This is a hypothetical example for illustration purposes only. Actual inflation rates maybe more or less than the illustrated rate.

Consider your life expectancy

Great strides in health care and prevention have increased how long we’re living. Average life expectancy in the United States is now almost 80 years, according to the U.S. Department of Health and Human Services.

The average 65-year-old American male can expect to live to age 83 and the average 65-year-old female to age 86. Those averages mean that one in two of us may live longer than that.

Plan for rising medical expenses

Spending on health care represents one of the largest expenses for many people in retirement.

Fidelity’s Retirement Health Care Cost Estimate reveals that a couple, both aged 65 and retiring in 2022, can now expect to spend an estimated $315,000 on health care throughout retirement⁶.

The figure has increased over 48 percent since 2005 when it was $190,000. Factors boosting this year’s estimate include longer life expectancies and anticipated annual increases for medical and prescription expenses. The estimate assumes enrollment in Medicare health coverage but does not include the added expenses of nursing home or long-term care.

As you plan, assume that health care costs will absorb an increasing amount of your income.

Verify your health care coverage

Be sure to confirm what will happen to your employer-provided health care plan when you retire. Most plans continue to cover retirees until they become eligible for Medicare at age 65, but there are variations.

And do not forget to look ahead to exactly how your current coverage will coordinate with Medicare, if at all, when you enroll in Medicare at 65.

Get a sense of what you can expect in actual medical costs. Expect these costs to keep rising as the years go by.

To supplement Medicare coverage, if you don’t have an employer-sponsored retiree health insurance plan, consider buying Medigap insurance, which covers many things that Medicare does not. Medigap resources can be found at www.medicare.gov/medigap.

Consider long-term care insurance

Long-term care, either in a medical facility or at home, can quickly deplete your savings. Also, medical costs will likely continue to rise, often at a rate higher than general inflation.

Long-term care insurance can be tailored to your needs, and there is usually a range of coverages and premiums from which to choose. Check out the following resources for additional information:

www.longtermcare.gov
www.aarp.org and search "long term care insurance"

⁶2019 Couples Retirement Survey – performed by Fidelity’s Benefits Consulting Group