Will your retirement savings be enough?

  • Research shows that most confident retirees had a financial plan for their post-work years
  • Retirement planning around timing of asset withdrawals is key to long-term security
  • Health care costs are higher than expected for many of today’s retirees
 

Most Baby Boomers who are already retired are feeling confident they won’t run out of money, according to the recent Ameriprise Pay Yourself in Retirement study.¹ What’s their secret? For starters, 8 in 10 had a financial plan for retirement. While many of the study respondents who are still working have been saving for retirement, nearly half of them have stalled in making the crucial next move: developing a plan to generate retirement income once they stop working.

So, what can those who are still in their saving years learn about retirement planning from satisfied retirees? Most confident retirees surveyed took steps — including working with an advisor — to calculate their future income needs and prepare accordingly.

The study revealed several areas crucial to maintaining your lifestyle in retirement.

Developing a Social Security strategy

While 401(k) and IRA plans are expected to be primary sources of retirement income for surveyed pre-retirees, they estimate that Social Security will still account for a quarter of their income. Most expect to begin taking benefits at age 65, but those who are able to retire early may want to collect at the earliest age of 62. On the flip side, if you can wait to collect, your overall Social Security income will increase by up to 8% each year you postpone applying for benefits, maxing out at age 70.²

Whichever strategy you choose, make sure there’s sufficient income to supplement your benefits each step of the way.

Calculating required minimum distributions

More than half of pre-retirees reported they don’t understand the rules around federally mandated required minimum distributions (RMDs), which require people 70 1/2 or older to begin taking distributions from most retirement accounts. Case in point: Many retirees don’t realize that if you’re 70 1/2 or older, you can gift up to $100,000 per year directly from an IRA to a qualified charity tax-free — and the distribution will count toward satisfying your RMD. While 70 1/2 may seem far off to some, it’s important to begin planning as soon as possible to develop an RMD strategy that works with your overall financial plan.

 

Planning for health care expenses

While the majority of retirees surveyed have as much — or more — money as they expected in retirement, a quarter of them are surprised by higher expenses, with health care topping the list. While pre-retirees surveyed assume health care costs will be higher in retirement, determining how much you may need can be a complex calculation, with both life expectancy and medical costs on the rise.

Understanding how Medicare, health insurance and long-term care insurance can work together to provide coverage could help ensure medical expenses don’t endanger your retirement income. Various tools — from health savings accounts to hybrid insurance policies — may cut your tax bill now while helping to prepare for unexpected expenses down the road.

What do successful retirees discuss the most with their advisor?1

  • Determining the right investment mix: 80%
  • Tax implications of various options: 56%
  • Timing of withdrawals from income sources: 50%
  • Income sources to draw from and how much: 47%
     

Talking to your advisor about retirement goals and strategies can help you plan or refine your post-work “paycheck.”