More retirement-age individuals are projected to work into their 70s than at any other time in American history.1 A retirement plan may help determine how long to work, and how to maintain necessary financial levels after leaving the workforce.2
When can seniors retire?
Retirement in the U.S. is often characterized by the age at which government health benefits and Social Security kick in. Currently, the full benefit age is 66 years and 2 months for people born in 1955 and rises to 67 for those born in 1960 or later.3 Claiming Social Security benefits “early” will result in a reduced payout, and benefits may actually increase for those who can delay claiming beyond their Full Retirement Age (FRA), up until the age of 70.4
What to consider when planning for retirement
Different people may have different visions of the ideal retirement lifestyle. Discuss retirement with spouses/significant others, talking openly and honestly about retirement plans, hopes and concerns. Topics of conversation may include:5
- Where to retire.
- Anticipated income from investments, pensions, Social Security, etc.
- Ideal retirement lifestyle and realistic associated costs.
- Current and future healthcare needs.
Estimating future healthcare needs may feel daunting. Fidelity Investments’ State of Retirement Planning Study found the average cost of out-of-pocket healthcare expenses for a couple retiring at age 65 is $295,500. Consider existing and anticipated healthcare coverage and associated costs as well.6
Simple steps for retirement planning
Figure out how much money is needed.
Typical advice is to replace 70% to 90% of annual pre-retirement income through savings and Social Security.7
A different and perhaps more realistic approach is to look at how much is currently spent each year, rather than how much is currently earned, and factor in inflation.8
Creating a personalized retirement budget may be helpful. Consider essential items (“needs”) such as food, shelter, clothing, healthcare and life insurance. Discretionary items (“wants”) can vary widely from person to person and include lifestyle factors like optional home improvements and upgrades, dining out, travel and entertainment, gifts, charitable donations and hobbies.9
Multiply by 25
Multiply the amount needed each year, in retirement, by 25 (or a number that better represents a conservative estimate of the retiree’s expected lifespan). This is how large a retirement portfolio should be, assuming there is no other source of retirement income. Financial calculators can do a good job of factoring in parameters—like the real rate of return after inflation and the desired value of the portfolio at death—to provide the best estimate of how much in savings, now, will provide the amount needed over the remainder of the retirement period.10
Discover what Social Security will pay
The estimator tool on the U.S. Social Security website can provide an idea of anticipated Social Security income. This amount can be subtracted from the annual amount a retirement savings portfolio will need to provide.11
Start saving right now
It’s never too late to begin saving and investing for retirement. For those aged 50 and over, in addition to standard retirement contributions, the IRS allows annual catch-up contributions to certain retirement plans.12
Use a retirement calendar
Retirement calculators, many of which can be accessed free online, can help determine how much to save, each year, between now and retirement in order to meet retirement savings goals.13
Diversify investments.
Make sure asset allocations meet your lifestyle, goals and expected lifespan.14 Some experts suggest an investment strategy based on age, risk tolerance and income goals. As a rule of thumb, 110 minus one’s age in years is the percentage of money to keep in equities (stocks) with the rest in bonds and cash equivalents, and the portfolio should be rebalanced yearly.15
How seniors can maximize retirement savings
Set a goal to reduce or eliminate debt. Paying off mortgage, credit card or car loans frees up precious retirement funding. If possible, make extra payments now to pay down debts faster. Aim to pay off high-interest debt first and consider talking to a debt counselor about which debts to prioritize.16
If it’s possible to relocate, consider tax-friendly and low-cost-of-living states. If not, look into special property tax exemptions for seniors who own and live in their own home. It may also be possible to claim costly out-of-pocket medical expenses as tax deductions, and it may be worthwhile to speak to a certified public accountant (CPA) or financial advisor.17
For those retiring on a limited income:18
- The Medicaid program provides health coverage to seniors with limited financial resources.
- Medicare Savings programs help those with limited income and assets pay for some of Medicare Part A and B.
- Supplemental Security Income (SSI) helps aged, blind and disabled individuals with little to no income meet basic needs for food, clothing and shelter.
- Affordable senior housing options include low-income senior apartments, cooperative housing and federal housing programs through the U.S. Department of Housing and Urban Development (HUD).
- The PACE program (Program of All-Inclusive Care for the Elderly) provides care and services to eligible adults aged 55 and over with chronic care needs.
- Military veteran benefits are available to members of the U.S. military who meet age or disability criteria.
- SNAP (Supplemental Nutrition Assistance Program) helps eligible low-income individuals purchase food.
Preparing to live on a fixed income means putting a detailed retirement plan into place,19 and the sooner the better. It’s never too early to start retirement planning. Every dollar saved now will be appreciated later, and strategic investing may shorten the catch-up period substantially.20 So get started today.
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Sources:
1Paula Plant, “Retirement Planning in 6 Easy Steps,” The Balance, last accessed September 1,2022,
2Tina Orem, “5 Steps to Retirement Planning in 2022: An Introduction & How-to Guide,” Nerdwallet, last accessed September 1, 2022,
3“Retirement Planning in 6 Easy Steps.”
4“Starting Your Retirement Benefits Early,” Social Security Administration, last accessed September 26, 2022,
5Kailey Hagen, “It’s Time to Talk to Your Spouse About Retirement. Here’s How to Start,” The Motley Fool, last accessed September 26, 2022,
6“Fidelity Study: Although 82% of Americans Say Past Year Impacted Their Retirement Plans, They Are Cautiously Optimistic,” Business Wire, last accessed September 26, 2022,
7Orem, “5 Steps to Retirement Planning in 2022: An Introduction & How-to Guide.”
8Plant, “Retirement Planning in 6 Easy Steps.”
9Plant, “Retirement Planning in 6 Easy Steps.”
10Plant, “Retirement Planning in 6 Easy Steps.”
11Plant, “Retirement Planning in 6 Easy Steps.”
12Plant, “Retirement Planning in 6 Easy Steps.”
13Plant, “Retirement Planning in 6 Easy Steps.”
14Plant, “Retirement Planning in 6 Easy Steps.”
15Plant, “Retirement Planning in 6 Easy Steps.”
16Plant, “Retirement Planning in 6 Easy Steps.”
17Plant, “Retirement Planning in 6 Easy Steps.”
18Plant, “Retirement Planning in 6 Easy Steps.”
19Plant, “Retirement Planning in 6 Easy Steps.”
20“5 Steps to Retirement Planning in 2022: An Introduction & How-to Guide.”
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