We have a lot of choices to make as we approach, enter and live in retirement. Making the right retirement decisions will impact our emotional and financial health.The major financial levers you have for retirement security include: how long you work, when you start Social Security, your health and healthcare spending, housing and mortgages, and how much you have saved.
Compare your choices in these categories to what the average person does and what experts suggest you are supposed to do:
Almost everyone gets Social Security, but you have some major decisions about when to start the benefit.
Start Age: The average age when retirees start Social Security is 64 but the most popular age to start benefits is 62 — chosen by 42% of men and 48% of women, according to the Social Security Administration.
- What is the right retirement decision? Experts agree that you will be better off if you wait to start. Use this Social Security calculator to determine your break even age.
Benefit Amount: The average monthly Social Security retirement benefit for January 2016 is $1,341. Good news if yours is higher. Broken out by gender, men earn — on average — $1,500 while women only collect $1,182. The maximum you could earn from Social Security in 2016 was $2,639.
- If you are unsure, you can determine your projected benefit on the Social Security web site. Then, log in to the NewRetirement retirement calculator to see the overall immediate and long term impact of different benefit amounts and start ages.
Percentage of All Income: In 2014, the average retiree earned 32% of their income from Social Security.
Housing is usually a retiree’s biggest expense and often their biggest asset. Your decisions about housing in retirement can give your retirement plan a major boost. Downsizing, getting a reverse mortgage, moving to a senior community, relocating abroad, housesharing, tiny houses or renting out a room can be interesting options for leveraging the wealth you might have in your home.
Home Ownership: The U.S. Census Bureau reports that for the third quarter 2016, the homeownership for those householders ages 65 years and over were 79.0 percent. This is the highest rate of any age group.
However, the Urban Institute believes that these rates will fall. Researchers have observed a decline in the share of 55- to 64-year-olds owning homes since 1990 and forecast a roughly 10-percentage-point decline in the rate of homeownership for this age group between 1990 and 2030.
- Experts agree that you have greater flexibility if you own a home. And it is particularly advantageous if you have already paid off the mortgage.
Mortgage Debt: Data from the Urban Institute found that only a quarter of all retirees enter retirement with mortgage debt. The study says that $24,500 is the median amount older adults owed in debt in 2012.
- While mortgage debt can have advantages, you have improved cash flow and more flexibility if you have paid off your home. Explore the pros and cons of mortgage debt.
Home Equity: According to the Census Bureau, in 2011, the average home equity for people 65 years and over was around $130,000.
- Be careful using this equity for retirement expenses, but a reverse mortgage home equity line of credit or downsizing can increase your financial flexibility.
Mortgage Interest Rates: If you are still paying off your mortgage, you might be interested to know that according to MyFICO.com, the average interest rate being paid ranges from 3.914 to 5.503 — depending on your credit score. Be sure to refinance into the lowest rate possible.
- Experts predict that interest rates will soon rise, so if you have a mortgage, the right retirement decision would be to make sure that you have the best possible rate. You can see the impact of lowering your interest rate in the retirement calculator.
The NewRetirement retirement calculator lets you model downsizing, reverse mortgages and more.
No Savings at All: According to IRI data, 45% of retirees have no retirement savings.
Average Retirement Savings: The Government Accountability Office suggests that the average retirement savings for Americans ages 55-64 is $104,000.
- Experts often recommend $1 million as a good target for retirees. But, that is not true for everyone. The best way to figure out how much you need is to assess your own budget. The NewRetirement retirement calculator is highly detailed and personalized and will help you figure out how much you need.
Net Worth: According to the U.S. Census Bureau lets you model downsizing, reverse mortgages and more. data, the typical American’s net worth at age 65 is $194,226. However, removing the benefit from home equity results in that figure plummeting to just $43,921.
- See your net worth in the retirement calculator. You can even compare your net worth to averages in your own zip code.
Health costs can be extremely high in retirement — rising as you age.
Healthy?: According to the Urban Institute, Between 1998 and 2012, the share of adults age 80 and older in fair or poor health fell from 43 to 34 percent. Better health can allow people to work longer and reduce Medicare and out-of-pocket medical costs.
- Experts recommend a healthy diet and an active lifestyle.
Out of Pocket Costs Medical Costs: Many retirees are not prepared for the high-cost of medical care in retirement when they are no longer part of a company plan. And, too many people believe that Medicare covers most or all expenses. The reality is that Medicare only covers a percentage of your medical bills. According to analysis, average out-of-pocket health care spending by Medicare beneficiaries is sizable and increases with age.
- On average, Medicare beneficiaries aged 65-74 spend $2920 a year in out-of-pocket expenses.
- Those aged 75-84 spend $3,815, a year.
- And, those 85 and above spend $4,615 a year – an average of 30 percent of their income.
Fidelity’s Health and Welfare consulting experts estimate that a couple retiring today at age 65 will need $160,000 in savings to pay for their health care over their lifetime, including insurance premiums and uncovered medical expenses but not any long-term care costs.
- Experts want retirees to be aware of and plan for these costs. Supplemental Medicare plans can minimize your lifetime out of pocket spend. The NewRetirement retirement calculator is one of the only online tools that builds these costs into your retirement plan.
Long Term Care: While 42 percent of people over the age of 65 require, or will require, long term care, neither Medicare nor Medicare supplemental insurance cover the costs of these services – neither in your own home nor in a nursing facility.
You should consider what you want to happen if you should require long term care. Explore options in Creative Ways to Fund Long Term Care. Or, try out different scenarios in the retirement calculator.
Long Term Care Insurance: The Center for Retirement Research at Boston College has found that only 13 percent of single individuals over 65 have long-term care insurance.
There are many pros and cons of Long Term Care Insurance.
Who is Working: The percentage of people working in their sixties is growing:
- Between 1994 and 2014, the share of men participating in the labor force—those working or looking for work—increased from 45 to 56 percent at ages 62 to 64 and from 27 to 36 percent at ages 65 to 69.
- Over the same period, the share of women participating in the labor force increased from 33 to 45 percent at ages 62 to 64 and from 18 to 28 percent at ages 65 to 69.
Working longer or finding a retirement job can be a fantastic strategy for boosting your financial security. Not only do your earnings increase — improving Social Security credits and your ability to save for retirement, but it also shrinks the amount of time you need to rely on retirement savings. See the impact of working longer or having a part time retirement job in the retirement calculator.
Averages are interesting to look at — especially if you are above average! However, retirement finances are complicated and highly personal. For example, in the right circumstances, you can get by on Social Security alone.
It all depends on what assets you are willing to use — your human capital, your home, savings — and how much you need to spend now and in the future.
The NewRetirement retirement calculator is an easy to use tool that puts you in the driver’s seat for all of the inputs. Forbes Magazine called it a “new approach to retirement planning.”
