It is difficult to save on pension because there are so many components in it. How much should you save at retirement? How many years will you spend on retirement? How will social security benefits be included in your pension income?
In addition, retirement savings are highly dependent on your unique situation, which means you can't just look at what other people your age save and assume you should do the same. This is especially true when there is not even agreement among Americans about how much it takes to withdraw. While around 38% of adults say they believe retirement will cost less than $ 250,000, according to a survey by the American Advisors Group, 25% say it will cost $ 1
To make sure you save enough to retire comfortably, there are a few questions to ask yourself before retiring.
1. How much money will you need each year in retirement?
The amount you expect to spend each year when you retire will be the basis for how much you should have saved at retirement. It is important to get as accurate an estimate as possible, if you underestimate how much you want to spend, you will run out of money before you had hoped.
A common guideline is to assume that you will spend around 70 to 80% of your income before retirement when you retire. So if you currently spend $ 50,000 a year, you can spend between $ 35,000 and $ 40,000 in retirement. However, this is just an estimate for the ballpark, and the best way to measure your future expenses is to make a retirement budget.
With a retirement budget, you won't be able to plan every penny you want, but you should try your best to at least cover the more substantial costs. For example, just how much will Medicare cost? Planning some expensive vacations? The more accurate your estimate, the better idea you'll have of how much you need to save before retiring.
2. Are you investing aggressively enough to reach your savings goals?
You've worked hard to save for retirement, so it makes sense to want to play it safe with your investments to reduce the risk of potentially losing your money. But playing it too safely can actually be riskier financially.
If your investments do not earn a high return, reaching your savings goals will be extremely challenging – if not impossible. For example, say you are 30 years old with a goal of saving $ 700,000 to 65 years. If you earn 7% annual return on your investment, you need to save $ 425 per month to reach this goal. But if you earn a 2% annual return, you have to save just under $ 1,200 per month.
Even if you start early and save consistently for decades, you need to save significantly more each month to reach goals. Savings accounts, CDs and other "less risky" accounts with lower returns are good for short-term financial needs, but for long-term goals, the best option is to invest in the stock market.
The stock market can be daunting, especially since many people are still recovering financially from the Great Recession. But by investing wisely, you can limit the risk while reaping the rewards. Index funds and equity funds are a good investment choice, because these funds allow you to spread your money into dozens or even hundreds of different stocks. That way you can earn solid enough returns to reach your savings goals while still being safe with your money.
3. How Much Do You Want to Depend on Social Security?
Social Security benefits are designed to replace about 40% of your pre-retirement income, and yet almost half of single benefit recipients and one in five married couples rely on their benefits for at least 90% of their retirement income .
The average Social Security check is only $ 1,471 a month, according to the Social Security Administration, which is difficult for many retirees to live. If you expect your benefits to cover most or all of your retirement expenses, you may be in for a rude awakening.
Fortunately, it's an easy way to see just about what you will get when you start claiming. By creating a mySocialSecurity account, you can get an estimate of your future benefits based on your real income and give you an idea of what to expect to get. When you know how much to spend each year on retirement, in addition to how much you will receive in Social Security benefits, you can decide how much of your retirement income you need to get from your personal savings.  4. How will you cover long-term costs?
When you are planning to retire, grow old and spend the last few years in a nursing home, it is probably the last thing you want to think about. But 7 out of 10 retirees will need long-term care at some point, according to the US Department of Health and Human Services, and those who need this type of care will need it on average for three years.
Long-term care is also not usually covered by Medicare, and the average semi-private room of a nursing home will cost you nearly $ 7,000 per month . At that rate, you spend about $ 250,000 on long-term care over three years. You can pay even more in some areas. If you are not prepared for these costs, they can quickly empty your pension fund.
One way to plan for these costs is to enroll in long-term care insurance. The key is to register early, because if you wait until you need long-term care to sign up, you'll either face sky-high prices or be denied coverage altogether.
Long-term care insurance can be expensive, with the average 60-year-old couple paying around $ 3,400 a year in premiums. So you have to decide if the insurance is worth the hefty price tag, or whether you should pay for long-term care out of your own pocket. However, it is important to include these costs in your retirement savings plan so that you are not monitored.
There are so many factors to consider when planning retirement, and it can easily become overwhelming. But by asking yourself some important questions as you plan, you can gauge whether you're on the right track to getting comfortable.