Retirement is complicated and there are dozens of factors to consider before starting this new journey in life. Some of the more exciting topics to consider include how to spend all your free time in retirement and all the new holiday destinations you will experience.
But before you can think of relaxing, consider how to pay for all those retirement lives. If you do not expect the economic side, it will not be nearly as pleasant as you had hoped to end up squeezing pennies just to make the end meet.
To ensure that recent years are as enjoyable as possible, here are three questions you should ask yourself before you retire.
. How much should I save for retirement?
More than 80% of people do not know what to save for retirement, a survey from Merrill Lynch and Age Wave found. It is not a simple question to answer, but knowing how much money you need to last the rest of your life is the basis of a good pension.
Retirement can cost more than you think and makes it even more important to have a good understanding of what to save. One-third of today's 65-year-olds can expect to live for at least 90 years, according to the Social Security Administration, so if you retire at age 65, you can live 25 years or more. Using a modest $ 30,000 per year will amount to about $ 750,000 during this period, and it doesn't expect inflation.
Because retirement costs can be unpredictable, it can be tempting to throw your plans out of the window, save what you can, and hope for the best. However, you calculate your pension costs as accurately as possible and get a rough idea of what to save, at least get you in the ballpark. You can still be hit by unexpected costs. But the more prepared you are, the better you will be able to recover and still enjoy retirement.
2. How much do I pay in 401 (k) fees?
A full 73% of Americans also do not know what they pay in fees or mistakenly believe they do not pay 401 (k) fees at all, according to a survey by TD Ameritrade.
All pension accounts are charged fees (those who manage these accounts expect to be paid somehow). The average 401 (k) takes about 1% of the total assets, according to a report by the US Progress Center. It may not sound that much, but the same report also noted that a worker who earns a median salary of around $ 30,000 at the age of 25 can expect to spend around $ 138,000 in fees alone over a lifetime, provided they pay annual fees of 1%. However, if that worker paid a little higher fees at 1.30% per year, the lifetime charges would jump to around $ 166,000.
So paying more than you need in taxes can cost thousands of dollars in life savings. By understanding how much you pay, you can decide whether to stick to your current retirement account or switch to one with lower fees. You can find out what you are paying by asking your plan administrator or checking your bank statement – which should provide you with information about the fees you pay and the percentage of funds you spend on them. The expense ratio is the most important figure to look for, and if it is much higher than the average of 1%, consider switching to a lower fee plan.
The only warning is whether your 401 (k) offers matched contributions from your employer. If that's the case, it's a good idea to contribute enough to earn the whole match, even though the 401 (k) costs high fees. Once you have earned as much money as possible, park the rest of the cash in an account with lower fees.
3. Will Medicare Cover All My Health Services?
Almost three-quarters (72%) of Americans say they do not fully understand how Medicare works, according to a Nationwide Retirement Institute survey, and 53% believe erroneous coverage is free.
With Original Medicare, Part A is usually free as long as you have worked and paid Medicare tax for at least 10 years. Part B, however, comes with a monthly premium of around $ 135, and if you want Part D coverage for prescription drugs, that's another cost. Even with Medicare coverage, you are still responsible for all deductible, co-insurance and co-payments.
Furthermore, Original Medicare usually does not cover routine treatment (including most dental and eye care), so you will either have to pay these costs out of your pocket or sign up for a Medicare Advantage plan – which is likely to be more expensive but will offer broader coverage. Health is not available in pension, no matter what type of plan you have. So the more you understand about how much Medicare will cover and how much comes out of your own pocket, the more prepared you will be for those costs.
Asking the tough questions about retirement is not as fun as planning which beach you are visiting first on vacation. But if you don't ask, you can't afford the life of leisure you planned. A little extra legwork now to ensure you have all your financial problems covered will pay off in a much more comfortable pension.