How Much Do You Know About Retirement Costs?
By Colleen Kane
- PUBLISHED August 08
- 7 MINUTE READ
Retirement can seem like a shimmering mirage. Will you ever get there? With many experts recommending that you plan for 30 years of post-career leisure, it’s a good idea to know what you’ll need for life after work. Take this quiz to test your readiness.
1How much is the average monthly Social Security payment for retired workers?
Answer A. In 2018, the average monthly payment is $1,404, with a maximum benefit of around $2,788 for people who have been consistently high earners for at least 35 years. You can’t find out for sure what your payment will be until you start collecting, but experienced workers can get an estimate.
2When should you start collecting Social Security?
Answer D. The minimum age for collecting Social Security is 62, but starting benefits then will result in lower monthly payments. The full Social Security retirement age falls between 65 to 67, depending on your year of birth. After that, the benefit amount goes up by 8% each year until you reach 70. At 70 it stops increasing, so there’s no reason to delay beyond that.
3What is a good target amount for retirement savings?
Answer C. Of course, this number varies greatly depending on when you retire, where you’ll want to live, available assets like pensions and other considerations. But recent calculations show that the oft-cited $1 million nest egg is no longer enough.
4What percentage of income should you be saving to meet your target?
Answer D. While saving 10% may have worked in the past and could still get some savers to the $1.5–$2 million mark, it might not be enough.
5What is Medicare?
Answer A. Medicare is another retirement resource that will play out differently from person to person, depending on factors like their existing health insurance and gap insurance.
6When can you draw down on a 401(k) without penalty?
Answer D. Many plans allow withdrawals at 55 if you are retired, provided you worked for the company until the year you turned 55. There are also exceptions to make withdrawals at age 50 for police, firefighters and EMTs. If you rolled over your 401(k) funds to an IRA, you can start withdrawing at 59½. But 401(k)s and traditional IRAs don’t require that you make withdrawals until age 70½, when the required minimum distribution (RMD) kicks in.
7Once retired, how much should you withdraw from your nest egg per year?
Answer A. Many people assume they can withdraw around 10% per year. But while there is no definitive answer, a popular rule of thumb is that you should draw down 4% in the first year, then continue to withdraw that percentage, adjusted for inflation, each subsequent year.
If you’re like many Americans, you may not have as much saved for retirement as is recommended. Wherever you are in your journey to retirement, don’t get discouraged! Start with little steps, like opening an IRA and making monthly contributions, making sure you’re getting the full employer match on your 401(k), or tracking your monthly spending to find ways to cut purchases and put money into a high yield savings account each month. If you set up accounts to fund your future self each month, you may find it’s easier to reach those retirement goals than you first thought.
Colleen Kane is a freelance writer who has contributed to CNBC, Fortune, Money and many other publications.