The notion of a comfortable retirement has been turned upside down over the past two decades. For the first time, a newborn American is expected to live to 90. Even at 65, you are now presumed to have an additional 22 mostly good years. This historic longevity is challenging every assumption about the golden years, from how you’ll spend all that time to how you can hope to pay for it. In one sense, the boomer generation is taking part in a grand and unprecedented experiment. After all, it is the first generation since the Depression to confront longer lives without a secure public safety net. It is practically a given that future retirees will work longer and have to self-fund most of their dreams. But how? The rules of retirement are in constant flux. Here’s the latest thinking:
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MAKE THE MOST OF SOCIAL SECURITY
Individuals may unwittingly leave lifetime Social Security benefits worth as much as $100,000 on the table, and a married couple may miss out on up to $250,000, according to Financial Engines, a benefits manager. There are thousands of claiming strategies, and a small industry of advisers and online tools like those at maximizemysocialsecurity.com has emerged to guide folks.
The most important step is a simple one: Wait until you’re 70 to begin collecting Social Security. You become eligible at age 62, but for every year you delay until age 70, the monthly payment grows 6% to 8%. “Unless health is an issue, we generally advise all our clients to wait,” says Jon Ulin, a certified financial planner in Boca Raton, Fla.
SECURE A BASE LEVEL OF INCOME
Retirees with enough guaranteed lifetime income to cover their basic expenses tend to be happier and feel most secure. But these days it’s up to individuals to ensure that income stream.
One common strategy is withdrawing no more than 4% of your 401(k) balance each year. This gives you a good chance of not running out of money for 30 years. But with today’s low rates, financial planners recommend dropping the rate to 3%.
Social Security is guaranteed income. So is any traditional pension benefit. If those two combined do not cover your basic living expenses, Fidelity Investments advises investing up to 30% of your nest egg in a fixed-income annuity, an insurance contract with a large up-front premium that pays a reliable monthly benefit no matter what markets do.
No one wants to hear that, right? But when given the choice, 72% of pre-retirees say their ideal retirement includes some work. Working even a few years longer allows you to build savings and delay tapping your nest egg. T. Rowe Price estimates that a typical 60-year-old couple who stay on the job to 70 rather than retiring at 62 would nearly double their monthly income in retirement. “Retirement today is not about building a bigger bucket,” says Danielle Howard, a financial planner in Basalt, Colo. “It’s about managing your life with what you have.” Working also keeps up your social connections, which is good for your health.
RETHINK YOUR HOME
Most retirees want to stay in their homes; that means changes to accommodate aging–no-slip surfaces, no-curb showers, lots of natural light, easy-to-reach storage and low lighting for nighttime mobility.
Some features can be retrofitted into a home for less than $3,000, including railings and grab bars. Basic modifications to a one-story home run about $10,000. That’s money well spent if it keeps you out of an assisted-living facility, with median costs of $3,600 a month.
PLAN FOR HEALTH CARE
Health problems top the list of worries for those planning to retire–and for good reason. A quarter-century ago, two-thirds of large companies offered retiree health benefits, and today that figure has fallen to one-third, reports Allianz Life Insurance. To better prepare, many retirees are buying insurance that supplements Medicare, such as Medigap and Medicare Advantage, and long-term-care insurance. You stand a good chance of keeping lifetime health costs down if you eat right and stay fit. You might also dedicate the income stream from a pension or Social Security to cover this cost.
FIND A PURPOSE
Think about what you are retiring to–not from. When you aren’t working, there is a vast world of hobbies that give your life purpose and possibly a paycheck. There is also an exploding array of volunteer opportunities, from political campaigns to mentoring to helping at the local school. Some 4.5 million retirees are now in “encore” pursuits in which passion, purpose and a paycheck come together, says Marc Freedman, founder of Encore.org. “These are not bridge jobs,” he says. “They are a whole new body of work.”
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