by Gary Foreman

It’s no surprise that, for most of us, life will change significantly after retirement. And that change will go much more smoothly if you’re prepared for it. We explore the answers to some of retirement’s FAQs.

No matter how you look at it, retiring is a major change in your lifestyle. For many, it’s something that they’ve been looking forward to for years.

Looking forward to retirement and being ready for it are two different things. So, let’s look at some common questions people ask about being ready for retirement.

Q: What’s the most important financial question for someone preparing for retirement?

A: The most common question is, “Will I have enough income to enjoy the retired lifestyle I want?”

Most of us have worked for 40 or 50 years, and we’ve looked forward to retirement for quite a while. Now, we don’t want to be disappointed. There’s nothing worse than not having the money to visit the grandkids!

Q: How can we know if we’ll have enough income to support our expected retirement lifestyle?

A: It’s easy enough to estimate your income and expenses after retirement, but it does require a little math.

Begin by estimating your income from pensions, Social Security, investments, and retirement plans. Most pensions will pay you a set amount each month. The same is true with Social Security. Add to that the income you take from your retirement accounts. As a rough estimate, you can expect to take about 4% of the value of your investment and retirement accounts each year as income.

Next, estimate your expenses. Historically, planners suggested that your after-retirement expenses would be about 80% of what they were pre-retirement.

More recently, planners have been heading away from this estimate. They recognize that today’s retirees are more active than in the past, and that means that they spend more.

So they’re suggesting that you start with your current expenses and subtract expenses that will stop when you retire (work clothing, work lunches, the cost to commute, etc.). Then, add any new expenses (additional travel, entertainment, hobby expenses, etc.) that will begin when you retire.

If that’s too complicated, just assume that your expenses will remain relatively unchanged when you retire.

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Q: How do you know when to begin collecting Social Security?

A: For most retirees, this is a very important and critical question. Starting to collect Social Security too soon could make your retirement budget unworkable.

You can begin any time after age 62 or as late as age 70. Each year that you delay will increase your benefit by 8%. If you wait until age 70, you’ll get over 50% more than beginning at age 62.

But that’s not the whole story. Having a bigger monthly check is great if you live long enough. Depending on when you and your spouse die, it’s possible that a smaller check started sooner will net you more.

Q: What’s the biggest financial concern for those closing in on retirement?

A: By far, it is outliving their money. According to a Nationwide survey, 71% feared running out of money in retirement.

Q: Most financial planners encourage people to be debt-free by the time they’re 50. Why is that?

A: Debt can be a budget buster in retirement. For most of us, our major expenses are housing, auto, food, and debt. Ideally, by the time you’re 50, you won’t be making mortgage or auto payments, or repaying credit card debts. Without those bills, you can really boost your retirement savings!

And it’s even more important after retirement. Your post-retirement income will go much further if the biggest expense in your monthly budget is food.

Q: Is there one easy step that I can take today to prepare for retirement?

A: Naturally, I’d suggest subscribing to our free After 50 Finances newsletter!

The other thing I’d do is find out how much you’ll get from Social Security and compare that to your current expenses. Most people assume a bigger Social Security check than what they’ll actually receive.

The size of your Social Security check is dependent on your earnings history, so check sizes can vary widely. If Social Security is a major portion of your post-retirement income, you need to know how much you’ll get. You can find an answer at the Social Security website.

• Commonly Overlooked Retirement Expenses
• How To Minimize 4 Risks to Your Retirement Savings
• Social Security Benefits If You’ve Been Married More Than Once
• 9 Things You Need To Do Before You Retire
• 5 Things To Do as Soon as You Retire
• Preparing for Surprises After You Retire

About the Author

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. Gary is available for audio, video or print interviews.