Retiring: 10 Questions

Jonathan Clements

SAVING ENOUGH FOR retirement, and then turning those savings into a reliable stream of retirement income, together constitute our life’s great financial task. Want to make sure you’re on track? Here are 10 questions to ask:

  1. Are you shortchanging your retirement by devoting too much of your income to other goals? For instance, can you truly afford private school for the kids? Do you really have the financial wherewithal to buy a second home?
  2. Are you putting enough in your employer’s 401(k) or 403(b) plan to earn the full matching contribution? Failing to collect the full match ranks as one of the most foolish financial mistakes.
  3. If you’re in the workforce, are you socking away at least 12% of your pretax income toward retirement? Add up how much you’re saving, including any matching employer contributions to a 401(k) or similar plan.
  4. How much income will your savings generate? First, use an online calculator to project how much you might amass by the time you quit the workforce. Then divide the resulting sum by 25 to see how much income your nest egg might generate each year.
  5. Do you have enough in stocks? Even after you quit the workforce, you could easily live 25 or 30 years in retirement, which is plenty of time to earn healthy stock market gains. You will likely need those gains, because 25 or 30 years is also plenty of time for inflation to do hefty damage.
  6. If you are retired and we got a repeat of the 2007–09 stock market collapse, when the S&P 500-stock index fell 57%, how would you cope financially? This is a reason to keep at least five years of portfolio withdrawals in short-term bonds and cash investments, so you can ride out a long bear market.
  7. Does your retirement plan reflect how long you might live? Find out your life expectancy using the calculator at Keep in mind that as you grow older, the average age to which you’re expected to live also rises—and, of course, there’s a 50% chance you’ll live longer than this average.
  8. When will you claim Social Security? If you answered, “when I retire,” think again. Social Security is a hugely valuable income stream, so it often makes sense to delay benefits to get a larger monthly check, especially if you were the family’s main breadwinner.
  9. Should you buy an immediate fixed annuity once you retire? Annuities aren’t a popular product—but they can be a good choice if you’re looking to squeeze a healthy amount of income out of your retirement nest egg.
  10. Once you quit the workforce, what will get you out of bed in the morning and give a sense of purpose to your retirement? You should view retirement not as an endless vacation, but as a chance to take on new challenges.

This is the first in a series of articles devoted to major financial topics and the key questions you ought to ask.

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