Can I Afford to Retire? Ask Yourself These 5 Questions to See If You’re Ready

Today’s retirees face one of life’s biggest financial questions: Will I have enough money to enjoy a comfortable retirement?

It’s common to have a lump-sum figure in mind -- $ 1.46 million to be exact, according to most Americans -- but this number alone doesn’t tell the whole story.

At Advance Capital Management, we know building a secure retirement goes beyond your current balance – it requires a deep look into your future lifestyle, healthcare needs, income streams and other key factors. That’s the value of comprehensive retirement planning.

The journey to retirement can be clearer when you break down this big question into smaller, practical steps. With a bit of planning now, you can better understand where you stand financially, what adjustments you may need to make, and how ready you truly are to take the leap.

Below, we walk you through five essential questions to help you assess your readiness and make informed decisions for a fulfilling retirement.

1. Am I Saving Enough?

• Contribute the Maximum: Are you making the most of your retirement accounts? For your 401(k), ensure you’re contributing enough to at least get the full employer match. But if you're over 50, consider making catch-up contributions to boost your savings.
• Diversify Across Accounts: Beyond your 401(k), look at other tax-advantaged accounts like IRAs or Roth IRAs. A diversified mix of account types can give you more flexibility in retirement, potentially reducing taxes and allowing for strategic withdrawals.

Not sure what’s ‘your number’? Read this article on how much you should save for retirement.

2. What Will My Retirement Lifestyle Look Like?

• Visualize Your Day-to-Day: Take time to imagine what a typical week in retirement will be like. Where will you live? What hobbies, travel or new activities will you pursue? Understanding your ideal lifestyle will help you gauge how much income you’ll need.
• Estimate Your Expenses: Make a rough budget for your retirement years, considering fixed costs like housing and healthcare alongside variable expenses like travel and entertainment. Having these numbers in mind gives you a better sense of the income needed for your lifestyle.

3. Have I Planned for Healthcare Costs?

• Assess Your Medical Coverage: Healthcare is often one of the largest expenses in retirement, so it’s essential to understand your options. Will Medicare be sufficient, or will you need supplemental insurance? Be sure to factor in any gaps in coverage if you’re retiring before 65.
• Consider an HSA: If you’re still working and have a high-deductible health plan, contributing to a Health Savings Account (HSA) can be a tax-efficient way to set aside funds for future medical expenses. HSAs offer tax-free withdrawals for qualified healthcare costs, making them a valuable tool for covering medical expenses in retirement.

Have access to an HSA? Learn more about how it could make a difference in your retirement plan here.

4. Do I Have a Sustainable Withdrawal Strategy?

• Build a Reliable Income Stream: A solid retirement income plan should combine all sources of income, such as Social Security, pensions (if applicable) and withdrawals from retirement accounts.
• Consider a Dynamic Approach: A flexible withdrawal rate allows you to adapt as your portfolio grows or if markets face downturns, helping create a more sustainable income. For example, you may set a baseline rate (e.g., 4%) but adjust it as needed to protect your portfolio's longevity, especially in the early years of retirement.

Take a deeper dive by watching the webinar replay on how to Optimize Your Retirement Income: Smart Withdrawal Strategies.

5. What Role Will Social Security Play in My Retirement Income?

• Determine Your Benefit Timing: When you start claiming Social Security has a big impact on your monthly benefit. Benefits increase each year you delay claiming, up to age 70. If you’re in good health and can wait, holding off could mean higher lifetime benefits.
• Coordinate with Other Income Sources: Consider how Social Security will interact with your other retirement income. A strategic claiming approach, aligned with other income sources, can help you maximize your overall retirement income and reduce the need for larger withdrawals from your portfolio early on.

Compare your options by reading this article on the pros and cons of Social Security claiming strategies.

Bonus Question: Ready for Personalized Guidance? Consult with a Financial Adviser

Every retirement plan is unique, and getting personalized advice can help you align your financial goals with the lifestyle you envision.

Our advisers can help tailor a strategy that’s right for you, factoring in your income needs, savings and all the details in between. Schedule a call today to discuss your path to a confident retirement.