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Retirement FAQs

No one can predict the future, so you don’t know what your retirement years will be like. You can, though, prepare for a long, healthy life with as few money worries as possible – through good planning now. Here are some topics that might help.


  1. Retirement is a long time away for me. Why should I start saving now?
  2. How can I save early in my career when I'm on a tight budget?
  3. I don't really understand investing. What should I do?
  4. How much income will I need to pay living expenses during retirement?
  5. How many years can I expect to live in retirement?
  6. How should I allocate the money I have earmarked for retirement?
  7. Should I consolidate my retirement accounts?
  8. How much emergency reserve should I have for unexpected expenses?
  9. How much can I withdraw from my retirement savings during retirement and not run out of money?
  10. What source of retirement money should I withdraw first?
  11. What pension distribution option should I choose?
  12. When should I begin to draw Social Security?
  13. Will Medicare cover my healthcare needs when I retire?

  1. Retirement is a long time away for me. Why should I start saving now?

    The answer is easy – compounding. Because of the amazing power of compounding, you can accumulate a substantial amount of money over the years without having to sacrifice substantial assets now.


  2. How can I save early in my career when I'm on a tight budget?

    Giving up part of your income for something that’s a long time down the road isn’t easy, and it takes a lot of discipline. But there are ways that you can save early that aren’t too painful to your budget.

    • Try cutting back on some of your small indulgences. Take your lunch to work rather than eating out. Rent a movie rather than going to the theater. Limit your music purchases to a set dollar amount each month – and stick to it. You’ll be surprised at how much you can accumulate.

    • One of the best ways to start investing for your retirement years is through your company’s 401(k) plan. Since the money is automatically deducted from your paycheck, you won’t be tempted to spend it. The added bonus – that money is tax-deferred, and that can be significant. For example, if you’re in a 28% tax bracket and you invest $2,400 into your 401(k), you’ll defer $672 in federal income taxes in a year. That means your out-of-pocket contribution is actually $1,728.

      If your employer offers a matching contribution, you really win because that’s free money. Using the previous example, if your employer matches 50 percent of your contribution, that’s $1,200 added to your future retirement. So, when all is said and done for the year, you’ll have $3,600 invested toward your retirement – over twice what it actually cost you. And that doesn’t include any investment earnings.

    • Even if you contribute to your 401(k) at work, you can also probably contribute to an IRA – but you don’t have to contribute the full amount. 

  3. I don't really understand investing. What should I do?

    Without question, investing can be confusing, but it’s something you need to do if you hope to reach your retirement goals. There are some easy ways to address your needs.

    • Mutual funds are a great way to get diversification without needing a lot of money or investment expertise. Each fund has an investment objective, which is explained in its prospectus. You can choose funds that match your particular goals and risk tolerance.

    • Having investment professionals invest your money for you is a very easy way to invest in your future.

  4. How much income will I need to pay living expenses during retirement?

    Basically, you should plan on about 75 percent of your pre-retirement income to pay for living expenses during retirement. That amount doesn’t include those special “extras” that you may want, so you might want to plan on a higher percentage if you plan to travel or pursue activities that are expensive.


  5. How many years can I expect to live in retirement?

    As healthcare continues to improve, many retirees are living active lives well into their nineties. So for planning purposes, assume you’ll live to age 90 unless your health or family history indicate otherwise.


  6. How should I allocate the money I have earmarked for retirement?

    How you divide your money among asset classes – referred to as “asset allocation” – is commonly considered the most important part of investing. How you divide that money, though, depends on a number of factors, including how long before you need the money and how much risk you’re willing to take with your money. Generally speaking, the longer you have until you need the money, the more risk you can afford to take.

    To see what a good allocation might be for you, answer the questions on our asset allocation questionnaire.


  7. Should I consolidate my retirement accounts?

    Consolidation makes sense for most people. By consolidating your retirement money into one account – such as an IRA – you may receive better service, lower fees, have better control over your asset allocation and benefit from professional management.  Ultimately, consolidation can make your life easier.


  8. How much emergency reserve should I have for unexpected expenses?

    Everyone – including retirees – should have at least enough cash to cover six months of expenses. This money should be invested where you can easily withdraw it without penalty – in a money market account, for example.


  9. How much can I withdraw from my retirement savings during retirement and not run out of money?

    While the rate at which you withdraw your assets could be adjusted depending on your stock and bond allocation, life expectancy and other assumptions, 4 percent is a commonly recommended withdrawal rate.


  10. What source of retirement money should I withdraw first?

    You should consider individual asset performance, tax implications, minimum distribution factors and account fees. The commonly recommended order of liquidation is:

    • Taxable accounts
    • Tax-free / municipal accounts
    • Roth IRAs
    • Tax-deferred accounts

    However, individual situations differ, so contact your tax adviser.


  11. What pension distribution option should I choose?

    The most commonly used pension option for a married couple is Qualified Joint and Survivor. You may want to consider other options if your spouse has a pension or other sources of cash, or if there is a significant difference in your ages or health.

    For a single person, Life with 10 Years Certain is the normal method of receiving pension benefits. You may want to look at other options if you have no heirs.


  12. When should I begin to draw Social Security?

    To meet your retirement income goal, you may need to draw Social Security benefits as soon as your are eligible, even if it is before you qualify for full retirement. Or, if you have adequate resources and expect to live beyond average life expectancy, you may choose to delay drawing Social Security.


  13. Will Medicare cover my healthcare needs when I retire?

    That’s an unfortunate misconception that many people have, and it can be a costly one. That being the case, you might want to continue your group coverage from work if you have it. Even though the cost will likely be higher than during your working years, it could be well worth it in the long run.

    Consider Medicare Supplement insurance to help you pay expenses not covered by Medicare.

    You might also consider long-term care insurance. If you have to spend a long time in a nursing home, you could see all the money you worked so hard to build for your retirement years eaten away in a short amount of time.

     


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