The cost of retirement can vary dramatically depending on where you live and what choices you make before you retire.
Ideally, you want to have enough social security and investments to maintain your current lifestyle.
While investment advisers routinely say $1 million in investments will ensure a happy retirement, this is not necessarily true. In high-tax states with high cost of living, a big retirement pot is probably essential. But, in lower tax states with lower cost of living, retirees might need about a fourth of that amount.
The key question is how you prepare before retirement.
- Run the numbers. Check with Social Security for an estimate of retirement income. But, remember your Medicare and taxes will be deducted from social security, so that number will be lower. For other income, you will be paying cash for taxes. Look at all your expenses. Medicare plus supplements and prescriptions could run more than you think. For example, some prescriptions could cost $100-$300 per month, even with a prescription plan.
- Get out of debt. The best strategy is to be out of debt before retirement. Aim for zero credit balances.
- Pay off the mortgage. In some cases, holding a mortgage might be financially wise, depending on how much your investments are making as opposed to the interest rate on your mortgage. But good general advice is to pay off the mortgage before retirement.
- Transportation. Plan to have a late model car that is paid off before retirement. A car payment soaks up retirement funds.
- Emergency fund. Build one with at least 3 to 6 months of expenses. Emergencies won’t stop just because you are retired, and you won’t have money coming in. You must avoid credit card debt.
- Long-term care insurance. Plan early to buy long-term care insurance when prices will be lower.