If you’re worried about your senior years, it’s important to do some serious planning ahead of time.
Retirement can be an extremely exciting period of life. But the idea of retiring can also be stressful.
In retirement, you’re going from working and earning a paycheck to living off of savings and having to fill your days. It’s a transition many people struggle with and worry about ahead of time.
In fact, 55% of Americans worry they won’t be financially stable in retirement, according to the National Institute on Retirement Security. That alone is worrisome. But if you’re suffering from retirement anxiety, taking these three steps could help alleviate a good part of it.
Image source: Getty Images.
1. Follow a popular rule of thumb for establishing a savings goal
One of the scariest things about retirement is not knowing how much savings you’ll need to cover your future expenses. After all, you don’t have a crystal ball and therefore have no way to determine how much things like healthcare and groceries will cost in 15 or 20 years from now.
But one thing you can do is follow a popular rule of thumb from Fidelity, which says to aim to have 10 times your final salary socked away in a 401(k) or IRA. If you’re earning $75,000 a year in your 40s, it’s conceivable that your ending salary might be $100,000. If so, you’ll know to aim for a $1 million nest egg. From there, you can use different calculators to see what monthly contribution to a retirement plan is needed to hit that goal, based on your savings window and investment strategy.
2. Come up with a withdrawal rate that makes you less likely to deplete your nest egg
Maybe you’ll manage to retire with a large amount of money. That’s the dream, right? But then the next challenge becomes ensuring that your money doesn’t run out.
In that regard, your best bet is to establish a safe withdrawal strategy from the start. That strategy should hinge on factors that include your retirement age, your investment mix, and the state of the market at the time of your retirement.
For years, financial experts were fans of the 4% rule, which had you withdrawing 4% of your savings in your first year of retirement and adjusting subsequent withdrawals for inflation. That strategy may be suitable for you if you have a fairly even stock/bond split in your portfolio and want your savings to last 30 years. But it’s also a good idea to run the numbers on alternate withdrawal strategies to see if another approach works better.
3. Figure out how you’ll spend your days once you’re no longer working
The idea of having completely unscheduled weeks in retirement may be enough to induce some negative feelings. It’s not easy having too much free time on your hands, especially when you’re used to a full-time work schedule.
That’s why it’s so important to come up with a plan for how you’ll spend your days before you retire. That plan could involve a combination of volunteer work, a part-time job, and a few clubs you plan to start or get involved in, whether it’s books, baking, or gardening.
You can also factor travel into your schedule if you think your savings will support a good number of trips. Between researching your destination, packing, and unpacking, a week-long vacation could turn into two weeks of prep time and recovery. If you’ll be taking a trip every other month, that might help fill your days, but you’ll need to make sure you can afford to travel that frequently before making it a big part of your plans.
It’s natural to be worried about various aspects of retirement. But if you’ve been losing sleep over the idea, use these tips to go in with a plan and ease your mind.