Approaching retirement can be an exciting time full of potential and possibilities. Four critical questions are likely to arise during this period, which may also be relevant to those already living in retirement. For additional information or assistance, please call a Dreyfus Representative at 1-800-443-9794.
1. How much replacement income do I need to pay both monthly and unanticipated bills?
It may be helpful to measure the amount you have today against your projected monthly expenses, including unexpected costs such as healthcare. This is a crucial area as uninsured healthcare costs can erode retirement savings quickly. Conducting a “gap analysis” will give you an idea of how much more you should save.
2. How long could my spouse and I live in retirement?
For a couple, age 65, there is a 25% to 50% probability that one or both spouses will live 30 or more years, depending on the study. Some even suggest the probability of living to age 95 is closer to 50%.4
Clearly, your retirement savings will likely need to last for many years, if not decades. However, people often do not realize how long they may live after they retire.
3. What happens if I begin to withdraw from my accounts when I retire and the market falls?
The impact of an extended market downturn shortly before or after retirement is twofold. First, it reduces the money available to live on. Second, because the losses are realized as investments are withdrawn for living expenses, it’s often difficult to recover even if the market makes substantial gains in the future.
A diversified portfolio may help weather a market downturn early in your retirement. The key is to have an asset allocation strategy, which includes different asset classes, in place. As you segue into retirement, you may want to reduce your exposure to stocks and increase your fixed income investments.
4. How much money can I safely take out of my retirement savings each month?
The reality is that there is no simple rule of thumb for this question. The answer will be unique to you and should take into account your health, your family’s longevity, your goals during retirement, your financial needs and the legacy you plan on leaving.
The best way to approach this question is to create a holistic financial strategy before you enter retirement. Each year, review your plan and update it, recognizing that it is likely to change over time.