On Track to Retire?

Advocacy

ON TRACK TO RETIRE?

How to tell if you’ve saved enough to retire when you want, and what to do if you haven’t. By Eileen Ambrose and Kimberly Lankford, The Kiplinger Washington Editors

Many people get serious about calculating whether Save more they are on target to retire when they hit their fifties. That’s often when reality starts to sink in and retirement no longer seems like just a vague goal. Figuring out whether you’ll have enough assets and income to cover a retirement that can easily stretch to 30 years can be daunting, but there’s no lack of advice out there. For a quick-and-dirty In 2018, you can contribute $18,500 on a pretax basis to a 401(k), plus another $6,000 if you’re 50 or older. As long as you turn 50 anytime this year, you can start making those catch-up contributions now. way to see if you’re on track, you could check one of the This money will be taxed when you withdraw it in multitude of savings benchmarks financial firms offer. retirement. Because of this, a tax-deferred account may be Or you could use one of the many online retirement depleted 25% to 35% faster in retirement than a taxable calculators provided by Fidelity Investments, T. Rowe Price, account, says Jennifer Davis, a CFP in Rockville, Md. She Vanguard and others. suggests also stashing money in a Roth IRA, which offers A better way tax-free withdrawals in retirement, or in an For a more accurate estimate, you’ll have to after-tax investment account. This will give you crunch your own numbers. A few things to keep flexibility to draw from different accounts to in mind: When you estimate yearly expenses in minimize taxes later. retirement, remember that you’ll no longer be Prepare for health costs contributing to retirement savings, you’ll likely pay less in taxes, and if you plan to pay off your mortgage, those Long-term-care expenses can devastate a financial plan. payments will disappear. (You may want to boost your In 2017, the average private room in a nursing home cost budget for travel and hobbies.) Don’t forget that your costs $97,500; assisted living cost $45,000; and the average will go up with inflation (figure 3% a year). home health aide charged $22 per hour (which would total The next step is to add up your annual sources of to the Cost of Care study by Genworth, a long-term-care guaranteed income, such as Social Security and possibly a insurer. pension. To find your estimated Social Security benefits, open a “my Social Security” account online. Finally, You should also plan for other medical bills in retirement, subtract your income from expenses. What’s left is how even after you are on Medicare. When you add up the much money you will need to draw down from your expenses, Fidelity estimates that the average couple retiring savings to maintain your lifestyle. at age 65 in 2017 will spend $275,000 on health care costs, You need to make sure you won’t deplete your savings or coverage to fill the gaps, over 21 years or so. “People too fast. One widely used guideline is to take an initial very, very much underestimate how much they may need,” withdrawal of 4% of your nest egg and increase the dollar says Katie Taylor, vice president of thought leadership at amount of your withdrawals each year by the annual Fidelity. To help pay for medical bills later, consider setting inflation rate. Based on historical investment returns, this up a tax-friendly health savings account now. rule of thumb holds that there is a high probability that $64,000 a year for eight-hour shifts every day), according including Medicare premiums and out-of-pocket expenses, your nest egg will last for at least 30 years, assuming 50% But retirement is about more than the numbers. It’s a new or 60% of your portfolio is invested in stocks and the rest chapter in life. “Individuals go right into crunching their in bonds. numbers to figure out whether they have enough, but they haven’t sat down and envisioned what enough is for,” says Maria Bruno, senior investment strategist at Vanguard.