When people talk about retirement, the conversation usually lands on one number. How much is enough? I understand why. It's a clean question, and it feels like it should have a clean answer.
But the people who seem to go into retirement most at ease aren't always the ones with the biggest balance. They're the ones who sat down a few years early and worked through the less glamorous questions: where the money comes from each month, what the bills really look like, and who gets what if something happens. Here are the five I'd start with.
Where will the monthly income come from?
For most households it's a mix. Social Security, maybe a pension, a 401(k) or 403(b) from work, IRAs, and whatever you've saved on your own. Each one has its own start date and its own tax treatment, and they rarely line up neatly.
Try this. Take a sheet of paper and list every source, how much you expect from it, and the month it begins. If you're married, do it for both of you. Plenty of people find a gap of a year or two between the last paycheck and the first check from somewhere else, and it's much better to find that gap now than the month it arrives.
What will you spend?
The old rule of thumb says you'll need about 70 or 80 percent of what you spend today. Maybe. For some families it's lower. For others it's higher, especially in the first few years when there's finally time to travel, see the grandkids, or fix up the house.
Some costs do fall away: commuting, saving for retirement, maybe a mortgage. Others stay put or grow. If you own a home in New York, property taxes and upkeep don't retire when you do. Go through a year of statements and sort the spending into what you must pay and what you'd like to pay. That one exercise tells you more than any rule of thumb.
How will you cover health care?
Medicare generally starts at 65. If you plan to stop working before then, you'll need something to cover the years in between, whether that's COBRA, a spouse's plan, or a policy from the marketplace. Those can be a real expense.
Once you're on Medicare, the cost doesn't drop to zero. There are monthly premiums, deductibles, and copays, and many people add supplemental coverage. Your initial enrollment window is only a few months on either side of your 65th birthday, and missing it can mean higher premiums for as long as you're enrolled. Put the date on your calendar early.
When should you claim Social Security?
You can start as early as 62, and your monthly benefit is smaller if you do. Wait until your full retirement age and it's larger. Wait until 70 and it's larger still. That much is simple. What isn't simple is deciding what's right for you.
It depends on your health and family history, on whether you're still working, on what other income you have, and, if you're married, on how the two benefits work together. A higher earner's benefit can become the survivor benefit later, which is a big reason many couples look at timing as a joint decision. There's no universal answer, and anyone who offers one without looking at your numbers is guessing.
What will taxes look like?
People are often surprised that retirement doesn't end taxes. Withdrawals from traditional IRAs and 401(k)s are generally taxed as ordinary income. Roth withdrawals are treated differently. Social Security benefits can be partly taxable depending on your other income. And once you reach the age when required minimum distributions begin, the government decides how much you have to take out each year.
Your income can also affect what you pay for Medicare, because premiums for higher earners are adjusted based on a tax return from a couple of years earlier. All of this is why the order in which you draw from different accounts can matter. Your CPA or tax preparer should be part of this conversation, and I'm glad to work alongside them.
The paperwork nobody wants to do
There are a few things that have nothing to do with investments and everything to do with your family. I'd put these on the list too.
- Check your beneficiary forms on every retirement account and insurance policy. They override your will, and they're often years out of date.
- Make sure you have a current will, a power of attorney, and a health care proxy.
- Think about long-term care. Even if you decide not to plan for it, decide that on purpose.
- Talk with your spouse or partner about what you each picture retirement looking like. It's surprising how often the two pictures differ.
Where to go from here
You don't need all five answers at once, and your answers will change as you get closer. What helps is having them written down, so the decisions you make feel like choices instead of reactions.
If you'd like company while you work through them, I'm happy to sit down and look at your own situation. The first conversation is free, and there's no pressure to do anything afterward.