9 Most-Frequently Asked Retirement Questions

If retirement is on your horizon, you undoubtedly want answers to pressing questions as you look to plan this next chapter of your life. While Medicare, Social Security, and retirement income are naturally top of mind for most pre-retirees, this post shares a more comprehensive list of related considerations to help guide you along your journey.

How much money will I need to retire?

This answer will vary based on the vision you have for your own retirement and the lifestyle you’ll want to live. That said, regardless of your chosen lifestyle, retirement is expensive.

While everyone’s situation is unique, one rule of thumb is that you’ll need 70 to 90% of your pre-retirement income to maintain your current standard of living. While these numbers may seem high to you (and they very well may be), you can also research how much money retiree households (led by someone age 65+) actually spend. Fortunately, the data is easily accessible and published annually by the U.S. Bureau of Labor Statistics. According to their most recent consumer expenditure survey, the average retiree household spends $52,141 per year. Using this number as a baseline, keep in mind that the figure will only grow for those further away from retirement.

When should I begin taking Social Security?

If you can continue to work and delay Social Security benefits, you should probably take advantage of this distinct opportunity—as you aren’t entitled to 100% of your Social Security benefits until you reach “full retirement age” (FRA), currently age 67 if you were born after 1959. Opting to receive benefits before hitting your FRA will result in a permanent monthly benefit reduction (nevertheless, you can begin collecting at age 62 if you so choose).

More specifically, Social Security benefits increase by approximately 7% annually between the age of 62 and your full retirement age—before rising to around 8% each year between your FRA and age 70.

To illustrate the corresponding impact, let’s assume the full amount of your Social Security benefit is $1,000 a month: the amount you’d receive if you wait until your FRA.

If you claim benefits at age 62, your monthly benefit will decrease by approximately 30% to $700: meaning you’re missing out on $3,600 a year! Multiply that by five years (when you’d reach full retirement age), and that’s approximately $18,000!

Can I work and collect Social Security at the same time?

Perhaps contrary to popular belief, you can collect Social Security benefits while you’re still employed. However, keep in mind that if you work prior to your full retirement age, the dollar amount of your monthly Social Security check is sometimes temporarily reduced if you earn more than the yearly earnings limit set by the Social Security Administration (SSA).

Based on 2023 parameters, the SSA will deduct $1 from your Social Security benefit payments for every $2 you earn above the annual earnings limit (if you fall below your full retirement age for the entire year). As the current limit is $21,240, if you earn $25,000 annually (for example), Social Security will withhold $1,880 of your benefits as you’re $3,760 above this threshold.

Likewise, if you work during the year you’ll reach full retirement age, Social Security will deduct $1 for every $3 you earn above the limit. The 2023 threshold is $56,520 in this scenario and only includes earnings prior to the month you reach your FRA. Therefore, if you earn $60,000 from January through October and don’t reach full retirement age until November, $1,160 is withheld.

Rounding out this information, if you’re still working when you reach full retirement age, your earnings no longer reduce your benefits no matter how much you earn.

Withholding means the Social Security Administration will actually stop sending you a check until they recoup the amount owed. For example, if you owe $3,500 and typically receive a monthly $1,000 Social Security payment, you won’t receive a check for four months—with the balance owed to you ($500) refunded at a later date.

How will I pay for medical expenses in retirement?

Healthcare—which includes health insurance, medical services, supplies, and drugs—ranks third among the most significant retiree household expenses, per the latest Consumer Expenditure Survey. On average, retirees spend $7,030 per year (or $586 per month) on these costs, the bulk of which goes to health insurance.

When most people turn 65, they become eligible for Medicare. This program consists of four parts, each covering specific services. Known as “Original Medicare,” Medicare Part A and Medicare Part B dictate the government pay providers directly for services received. Most people don’t need to pay a premium for Part A (hospital insurance) but are required to do so for Parts B, C, and D. While understanding Medicare basics is essential, you’ll also want to avoid these common mistakes.

Perhaps a more significant concern is long-term care, defined as help you might need with “activities of daily living” (or ADLs) due to injury, health declines, or cognitive impairment such as dementia, memory loss, or Alzheimer’s. Such activities include bathing, dressing, eating, toileting, continence, and transferring (walking or moving oneself from a bed).

Long-term care insurance policies typically cover out-of-pocket expenses with respect to home care, assisted living, and nursing homes. Please note that Medicare and other public programs generally do not cover these benefits.

If you don't believe you’ll require long-term care, keep in mind that someone celebrating a 65th birthday today has an almost-70% chance of needing some form of these services in his or her remaining years (per the U.S. Department of Health and Human Services). Moreover, an estimated 20% will need care for more than five years.

What are some other money-saving strategies for retirement?

Some lesser-known ways to help boost your retirement savings include catch-up contributions and health savings accounts (HSA).

When you turn 50 (or are slated to hit this milestone by the end of the calendar year in which the plan year ends), the IRS allows you to make annual “catch-up contributions”: additional contributions you can make above standard limits to your 401(k)s and IRAs. This feature is offered to encourage savings and help ease the financial burden of retirement, especially if you didn’t save enough when you were younger.

You can use a health savings account (HSA) to pay for qualified out-of-pocket healthcare expenses, including deductibles and copays. HSAs are designed to help people with high-deductible health insurance plans (HDHP) pay for such expenses. As account balances roll over every year, it’s much easier to save for future healthcare costs in this regard.

What changes should I make to my investment portfolio, if any?

As a general rule of thumb, you should invest more conservatively as you age: meaning the percentage of equity holdings (stocks) invested in your retirement accounts should decrease. This strategy is implemented to reduce risk, which is especially critical as soon-to-be or current retirees may lack the luxury of waiting out a market bounce-back following a dip.

While the actual number varies per each individual’s situation, you’ll generally want to subtract your age from 100 to pinpoint which percentage of your investment portfolio to keep in stocks. “Safe” assets—such as bonds and CDs—should round out the remainder of your portfolio.

Due to longer lifespans, some experts have modified this rule and now recommend you subtract your age from 110 (or more!) to keep from running low on funds.

Despite this widely available knowledge, a recent Fidelity report claims investors—specifically 37.6% of Baby Boomers—are exposing their retirement accounts to unnecessary risk via too much investment in stock.

Obtaining a risk report from your financial advisor will not only tell you if you’re overexposed to risk but also arm you with the knowledge you need to make changes accordingly.

Will I have enough money to last through my retirement?

For most of your life, you’ve spent money based on the amount of income you’ve earned. However, retirement calls for a (often difficult) psychological adjustment because you’ll now spend based on your savings and overall comfort level.

You can take several traditional approaches here. One such strategy is the 4% rule, which states you should withdraw no more than 4% of your investment assets during the first year of retirement. Then, in subsequent years, you can adjust your withdrawals for inflation annually: either by taking a 2% increase each year (the Federal Reserve’s target inflation rate) or adjusting withdrawals based on actual inflation rates. In theory, adhering to this rule should allow for investment growth that prevents you from depleting your funds too quickly over a 30-year retirement period.

Another option is to buy an annuity (discussed in more detail below), an insurance product that provides you with a guaranteed stream of income for the rest of your life in exchange for a lump sum (or series of payments).

Regardless of your approach, know that it’s imperative to develop a cash flow strategy based on your own specific situation.

Should I purchase an annuity?

As mentioned earlier, an annuity is a type of insurance product that provides investors with a guaranteed income stream wherein you pay money upfront (via a lump sum or series of payments) that is invested and later paid out per an agreed-upon time, amount, and timeframe.

Annuities are often appropriate investments if you’re:

-A conservative investor seeking a guaranteed source of income for the rest of your life

-Worried about running out of money during retirement

-Looking to protect your legacy (if you include a death rider, you can pass your annuity to one or more named beneficiaries)

-Already maxed out on all other vehicles but want to continue funding your retirement

Keep in mind, however, that annuities are expensive, sometimes needlessly complex, and often summon various fees that make them less attractive: meaning they aren’t for everyone.

Should I pay off my mortgage before retirement?

If you aren’t robbing one of your retirement accounts to pay off your mortgage, it often makes sense to retire with as little debt as possible. Doing so will allow you to live a more comfortable lifestyle, especially when you consider that housing is the most significant expense for the average retiree household and represents almost 36% of annual expenditures.

In sum: the most common retirement questions

While we hope the information presented herein helped address some of your questions, it’s important to remember that everyone’s situation is different: meaning more specific answers will vary based on your own unique circumstances. This is precisely why we recommend you meet with a financial professional (ideally a CFP® professional) to help hone in on the detailed answers you’re seeking.