10 Financial Questions You Should Be Able to Answer Before Retirement

10 Financial Questions You Should Be Able to Answer Before Retirement

Retirement is something many of us spend decades preparing for.

We contribute to a 401(k), IRA or other retirement account. We pay into Social Security. We build savings, perhaps pay off a mortgage and eventually start thinking about the day when working becomes optional.

But there's an important difference between saving for retirement and understanding retirement.

A retirement account balance can tell you how much you've accumulated. It doesn't necessarily tell you whether you're prepared for the decisions that come next.

And there are a lot of decisions.

When should you claim Social Security? Where will your monthly income come from? How will taxes affect that income? What will healthcare cost? How much can you reasonably withdraw from your savings? What happens if you live considerably longer than expected?

Financial education isn't about knowing every answer yourself.

It's about knowing enough to recognize the questions you should be asking before you make important decisions.

So, how prepared are you?

Try answering these 10 questions without looking anything up.

1. How Much Income Will You Actually Need in Retirement?

Most people know approximately how much they earn today.

That's different from knowing how much they'll need tomorrow.

Some expenses may decrease in retirement. Your mortgage could be paid off. You may no longer commute to work or contribute to a retirement plan.

Other expenses may increase.

Healthcare, travel, home maintenance and other costs can change considerably as you age.

And then there's inflation.

If your retirement lasts 20 or 30 years, the amount required to maintain your lifestyle is unlikely to remain the same.

The question isn't simply, "How much have I saved?"

It's also:

"How much income will I need, and for how long?"

Could you estimate your answer today?

2. Where Will Your Retirement Paycheck Come From?

During your working years, this question is relatively easy.

Your employer pays you.

In retirement, that single paycheck may be replaced by several different sources of income:

• Social Security

• Employer pensions

• 401(k), 403(b) or similar plans

• Traditional or Roth IRAs

• Personal savings

• Investments

• Annuities

• Rental or business income

• Part-time employment

These sources may also be taxed differently and become available at different times.

Before retirement, you should be able to identify your expected sources of income and understand how they fit together.

3. What Happens to Your Social Security Benefit if You Claim Earlier—or Later?

You may know approximately when you're eligible to begin receiving Social Security retirement benefits.

But do you know what happens to your monthly benefit depending on when you claim?

Your claiming age can affect the amount you receive.

Your full retirement age matters.

Waiting beyond full retirement age can also affect your benefit, up to the applicable age limit.

And for married couples, Social Security can introduce additional questions involving spousal and survivor benefits.

The important question isn't:

"When can I take Social Security?"

It's:

"What should I understand before deciding when to take Social Security?"

Those are very different questions.

4. How Will Your Retirement Income Be Taxed?

Your retirement accounts may look like one large pool of savings.

From a tax perspective, they may be very different.

Money withdrawn from a traditional IRA may be treated differently from qualified withdrawals from a Roth IRA.

Pension income may have tax implications.

Social Security benefits can also be subject to federal income taxation depending on your circumstances.

Investment income may introduce another set of considerations.

Understanding these differences can become particularly important when you're deciding which sources of money to use and when.

If you withdrew $50,000 from your retirement accounts next year, do you know approximately how much of it could be taxable?

5. When Will Required Minimum Distributions Affect You?

You've spent years putting money into retirement accounts.

Eventually, rules may require you to begin taking money out of certain accounts.

These are known as Required Minimum Distributions, or RMDs.

Do you know:

• Which of your accounts may be subject to RMDs?

• At what age the rules apply to you?

• How is the amount determined?

• What tax implications those withdrawals could have?

Retirement planning isn't only about accumulating money.

At some point, it also becomes about understanding the rules governing how that money comes back out.

6. What Will Medicare Cover and What Won't It Cover?

One of the biggest misconceptions about retirement can involve healthcare.

Reaching Medicare eligibility doesn't necessarily mean that every healthcare expense is covered.

There are different parts of Medicare.

There are premiums, deductibles and potential out-of-pocket expenses.

Prescription drug coverage involves additional considerations.

And long-term care is another issue entirely.

Before retirement, you should understand at least the basic structure of Medicare and where potential gaps in coverage could exist.

Ask yourself:

If I retired tomorrow, could I explain the difference between Medicare Parts A, B, C and D?

If not, that's an excellent topic to learn more about.

7. How Long Does Your Money Need to Last?

Nobody knows exactly how long they'll live.

That's precisely why this question matters.

Someone retiring at 65 could potentially spend 20, 25, 30 or more years in retirement.

That creates a challenge.

You need enough income to enjoy retirement today while considering the possibility that your savings may need to support you decades from now.

Inflation compounds that challenge because purchasing power changes over time.

The question isn't:

"Do I have enough money to retire?"

It's:

"How is my retirement income designed to support me if I live much longer than I expect?"

8. What Happens Financially if Your Spouse Dies First?

For couples, retirement planning shouldn't only work while both spouses are alive.

What happens afterward?

Household income may change.

Social Security benefits may change.

A pension may or may not continue depending on elections that were made.

Tax circumstances can change.

Certain expenses may remain almost exactly the same even though the household now has only one person.

Both spouses should understand the family's finances well enough to answer a difficult but important question:

"Would either of us know what to do financially if we suddenly had to manage everything alone?"

9. Are Your Beneficiary Designations and Estate Documents Actually Up to Date?

Having a will is important.

But it's not the only document that may determine what happens to your assets.

Retirement accounts, insurance policies and certain other financial accounts can have beneficiary designations.

Those designations deserve periodic review, particularly following major life events such as:

• Marriage

• Divorce

• Birth of a child or grandchild

• Death of a spouse or beneficiary

• Significant changes in assets

• Relocation

Estate planning isn't simply about having documents.

It's about understanding what those documents and designations actually do and whether they still reflect your intentions.

When was the last time you reviewed yours?

10. What Would Make You Change Your Retirement Plan?

This may be the most overlooked question of all.

A retirement plan is based on assumptions.

What happens if those assumptions change?

What if:

• You retire earlier than expected?

• You work several years longer?

• Inflation remains higher than anticipated?

• Investment markets decline near your retirement date?

• Healthcare expenses are greater than expected?

• You need to help an adult child or aging parent?

• One spouse requires long-term care?

• You decide to move?

• You live significantly longer than anticipated?

A retirement plan shouldn't simply describe what happens if everything goes according to plan.

You should understand what happens when it doesn't.

So, How Did You Do?

Go back through the 10 questions.

How many could you answer confidently?

8–10? You may already have a strong understanding of many retirement concepts—but there are always areas worth reviewing as rules and circumstances change.

5–7? You have a foundation, but there may be some important areas you haven't explored yet.

0–4? You may have just discovered something valuable.

You now know some of what you don't know.

And that's not a failure.

That's awareness.

You Don't Need to Know Everything

If you can't answer all 10 questions, the solution isn't to become a financial expert overnight.

You don't need to memorize the tax code.

You don't need to become an expert on Social Security.

You don't need to understand every investment available.

And you don't need to know every Medicare rule.

What you do need is enough understanding to recognize when a decision matters and which questions you should be asking.

That's the purpose of financial education.

Because the most expensive time to discover that you didn't understand something may be after you've already made the decision.

Learn Before You Need the Answer

The Society for Financial Awareness (SOFA) provides educational workshops designed to help people better understand important financial topics and the questions surrounding them.

SOFA Tampa workshops focus on education—not selling financial products—so attendees can learn about financial concepts in an educational environment and become better prepared to evaluate the decisions they may encounter.

You don't have to wait until retirement is immediately in front of you.

In fact, that's exactly the point.

The more you understand before you need to make a decision, the more prepared you can be when that decision arrives.

What Don't You Know Yet?

If even one of these 10 questions made you stop and think, you've identified an opportunity to learn.

Explore an upcoming SOFA Tampa educational workshop and start turning the questions you can't answer today into the knowledge you can use tomorrow.