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Take these steps to avoid going broke in retirement.
- Business Insider spoke with financial experts to learn what you can do today to avoid going broke in retirement.
- One financial expert said you should save 10% of your income, but that should be adjusted based on your age and salary.
- Another advisor said you should delay your Social Security benefits so that you get a higher income at 66.
- Visit Business Insider's homepage for more stories.
Retirement is filled with uncertainty. Some retired people have costly unforeseen health issues, while others outlive their financial benefits completely.
Specifically, there's a lot that can go wrong with your financial standing while in retirement. Business Insider spoke with financial experts who specialize in retirement to learn what you can do now to avoid a financial crisis in your retirement.
Consider taking the following five steps to avoid going broke later in life.
Firstly, create a realistic retirement income plan.
Poor planning and overspending are the fastest ways to go broke in retirement. Dana Anspach, founder and CEO of Sensible Money, said you must create a retirement income plan so that you're financially prepared. To create this plan, you must ask yourself a few questions.
"How much will you get from Social Security, pensions, annuities, or rental income?" Anspach told Business Insider. "How will you supplement that with withdrawals from your savings and investment accounts? How will you monitor your plan, so you know you aren't withdrawing so much that you are running the risk of coming up short later?"
While these questions may be hard to answer for most 20 and 30-year-olds, it's important to at least consider them early in your career. On the other hand, people closer to retirement must know the answers to the questions before making the lifestyle change.
If you can answer these questions before retirement, you'll be better off financially later in life.
Next, start saving 10% of your income immediately.
Anspach goes on to say that everyone should save at least 10% of their income. The younger you start this practice, the more financially sound you'll be in retirement. She said she understands that most people don't start saving for retirement until later in life, so many should consider saving a higher percentage.
"A 30-year-old making $40,000 a year and planning to work until age 66 may only need to save 10% of their income to maintain a $40,000 a year lifestyle into retirement," Anspach told Business Insider. But on the other hand, "A 45-year-old making $200,000 a year may need to save 30% or more of their income each year if they want a reasonable chance at maintaining their same standard of living in retirement."
Read more: How much Social Security will I get? Find out with a free tool that only takes seconds to find
You should consider delaying your Social Security benefits.
The retirement age to receive your full social security benefits is 66, but some retire before that age and opt for early retirement benefits. Ben Storey, the director of Retirement & Personal Wealth Solutions Office of Thought Leadership at Bank of America, told Merrill that people should consider delaying their benefits instead.
"As most people know, the longer you wait to begin taking benefits, the greater the monthly amount you receive," Storey said. "That's especially significant should you live a very long life. And because market interest rates are still quite low today, allowing the government to keep your money longer could potentially provide a higher return than you could get from most fixed-income investments."
Invest your time in a side hustle.
Another way to increase your income in retirement is to take up a side hustle in your 30s and 40s. Some people who have taken on a part-time job increased their annual income by $1,000 to $30,000. Ken Steiner, a fellow of Society of Actuaries who runs How Much Can I Afford to Spend in Retirement, told Business Insider this extra cash can go straight into your retirement fund, but he does have a warning.
"The best approach is to stay fully employed if that is not too painful because you can continue to save and you will defer commencement of your Social Security benefit," Steiner said.
Finally, meet with a financial advisor.
Meeting with a financial advisor early in your career can pay off later in retirement.
- Read more:
- How much Social Security will I get? Find out with a free tool that only takes seconds to find
- Even wealthy millennials who started saving in their 20s think they'll retire with debt
- Here's what the average retirement home community costs in every state
- Here's exactly how to figure out when you can retire
