Imagine you’re planning a round-the-world cruise. It won’t happen for a few years but you’re serious about going. One of the first things you do is figure out the cost. As the date draws closer, you nail down the exact amount of money you’ll need.
Now, imagine you’re planning to retire. Wouldn’t you do the same thing? Figure out exactly what it will take to keep you afloat during your retirement journey?
Most Americans don’t. In one survey, only 14% of pre-retirees knew what their Social Security payments were likely to be at retirement.1
“That’s scary,” says Douglas Dubitsky, Guardian Vice President, Product Management, Retirement Solutions. “Social Security benefits were never meant to be the only source of income in retirement. Understanding your benefits will help you plan confidently for retirement. And we know that having a plan is one of the key behaviors in achieving financial and emotional confidence.” What else is scary according to Dubitsky – not having other retirement assets on hand to cover you should you opt for delayed Social Security payments.
Being strategic about your overall retirement income plan in this way is one way to become more financially and emotionally confident. Dubitsky has some additional rules of thumb.
The 75% rule. You need about 75% of your pre-retirement earnings to live comfortably in retirement. If you earn $76,000 a year, for example, you’ll need retirement income of $57,000. Social Security will only cover part; about $32,000 a year would have to come from other sources.2
Wait if you can. While there is no “right time” to retire, the age you activate your benefits makes a big difference. If you were born between 1943-1954 and apply for Social Security benefits at age 62, you’ll receive about $1,000 less per month than if you wait until age 70. Again, if you do choose to delay Social Security, make sure you have other retirement assets on hand to cover you.
Get real numbers. Calculating Social Security benefits is complex. Use this estimator to calculate your Social Security income.
Factor in healthcare costs. Medicare premiums and health care costs keep rising. A married couple, both age 65 in 2020, may need up to $365,000 over retirement just to cover health care.3
There are no guarantees. The mass migration of Baby Boomers leaving the workforce is putting a financial strain on the Social Security program. Payout may only be 77 cents for each dollar of scheduled benefits by 2033. All the more reason to plan for alternative sources of income!
“There are other practical things you can do,” adds Dubitsky. “Limit your dependence on Social Security earnings in retirement planning by increasing retirement contributions to both your IRAs and 401(k)s. Set up automatic deductions if possible. Estimate your retirement expenses now and calculate them out 30 years to see what a long retirement will cost. And stay on top of rising medical expenses by building up a health savings account (HSA).”
He also suggests investigating lifetime income annuities. “Basically, you pay a lump sum of money in exchange for a guaranteed payout for life,” Dubitsky explains. “An annuity mitigates the longevity risk because you continue to receive payouts no matter how long you live. As with any facet of retirement planning, there are many things to consider, including the terms of the annuity and strength of the company behind it. Talk to a financial professional who can help you weigh the pros and cons.”
Understanding your financial persona can help you plan for retirement with more than one egg in your nest. Are you a Retirement Realist? A Day-to-Day Decision-Maker? An Ambitious Spender? Take our Financial & Emotional Confidence Quiz to find out, and start building true security for your retirement years.
Brought to you by The Guardian Network © 2017. The Guardian Life Insurance Company of America®, New York, NY
2019-85411 Exp. 09/21
2 – Sources: Social Security Administration, Actuarial Note 2016.9, June 2016. Notes: Replacement rates represent the sum of annual scheduled benefit amounts and other retirement income as a percent of career-average annual earnings. Social Security benefits for retired workers at full retirement age (age 66 for workers born 1943 to 1954) in 2017 provide 90 percent of the first $791 of average indexed monthly earnings, 32 percent of additional earnings up to $4,768, and 15 percent of earnings above $4,768.