Create your roadmap to retirement

Retirement is complex and full of important questions. Can you afford the retirement you want? Will you run out of money? How will you cover your future healthcare costs?

Understandably, it’s hard to know where to begin. That’s where a roadmap to retirement can help. We’ll help you outline your goals, the risks you may face, and the resources you may have available. From there, you can prioritize what’s important to you and prepare for the future. Use this guide as a framework for making decisions in retirement—and adjust over time if your needs change.

The 4 steps to creating a roadmap:

• Determine your retirement goals.
• Understand your risks.
• Review your financial resources.
• Develop a plan to achieve your goals and lessen your risks.

Start by thinking about financial security. It’s the peace of mind retirees experience when feeling confident they will reach their financial goals—and continue being able to do so in the future.* What security and success look like is up to you. But you can start by considering these 4 goals:

• Covering basic living expenses. Retirement income for food, housing, clothing, transportation, and other costs. Things like insurance premiums and deductibles are included here too.

• Maintaining contingency reserves. Money for surprise events, such as extraordinary health care expenses or home repairs.

• Having discretionary spending. Money for the lifestyle that you want—beyond basic living expenses. This includes vacations, dining out, and other leisure activities.

• Building a legacy. Wealth that you’ll pass along to your heirs or a charity.

Our calculator can help you figure out what your expenses could be in retirement.

Most people start with a clear strategy for meeting their basic living expenses. After that, prioritize your goals. Put the ones you consider most important high on your list. Those that are less important—or not a priority for you at all—can fall lower on your list. Once you’ve lined up your goals, it’s time to understand your risks.

Consider how your risks will affect the goals you prioritized in the first step. Knowing what risks to prepare for can help you come up with a plan to lessen their impacts.

Let’s look at a few:

• Market risks. Just like stock markets can increase, they can also drop. Inflation can eat away at your purchasing power. How will this affect your goals? Keep in mind that you usually need a certain amount of market risk to meet your objectives. And some goals (like having more discretionary spending) may be able to handle more risk than others (like meeting your basic expenses).

           Want to learn more? Check out this article.

• Health risks. Health care can be costly at any stage of your life, but especially as you get older. It’s a common concern. Being able to afford an unexpected medical bill worries 58% of Americans, according to a recent survey.** Of course, costs can go beyond doctor’s visits and hospital bills. The risk of cognitive decline such as with Alzheimer’s disease, or the need for long-term care, should also factor into your considerations. 
  
  When weighing your risks, insurance, health benefits, government programs like Medicare, genetics, and lifestyle all come into play. Take a deep look at how you’d handle health issues that might come up later in life. 
  

• Event risks. The unexpected can happen. And it can be costly. Events include family expenses that come up or extensive home repairs. Unplanned expenses like this are common. About 72% of retirees reported at least 1 such shock in their retirement.*** It’s understandably difficult to predict the cost. But you should plan to have money available to address these risks. Learn more about preparing for an emergency.

• Longevity and mortality risks. This is the risk that you’ll outlive your savings, or that you’ll have a shorter life that will impact a surviving spouse financially.

• Tax and policy risks. Rules for public health coverage, retirement benefits, and estate taxes can change over time. Focus on controlling what you can and diversifying your portfolio. And consider speaking with your tax or financial advisor.

At this stage of your life, you may have many types of financial resources—from retirement savings and Social Security, to your home. A good plan will balance your resources as you aim for your highest priority goals—all while managing risk.

Take a look at your financial resources and include them in your list. Here are some examples of what may be available to you, and what goals they can support. We’ll help you identify the primary goals each of these resources support, as well as the primary risks they can lessen.

A defined benefit pension is a government or private financial resource with a guaranteed payout that can provide a base level of income. Social Security is a common one, and one that you’ll want to get a handle on. When you claim Social Security determines how much you’ll receive each month, so there are strategies you’ll want to consider. Want to learn more? Check out this article.

Primary goal supported: Basic living expenses.
Primary risks lessened: Market and investment, longevity and mortality.

Income annuities can provide a stable source of income. They also often require a significant amount of money to buy one. If you’re considering an annuity, consider your primary goals for having one.

Primary goal supported: Basic living expenses.
Primary risks mitigated: Market and investment, longevity and mortality.

How you manage your portfolio is an important part of retirement planning. A successful retirement depends on appropriate portfolio construction and management decisions.

Your asset allocation (such as how you invest in stocks, bonds, and short-term reserves) should align with your risk tolerance and the time horizon for your goals. More risk can lead to more reward. But there are tradeoffs. If your portfolio is too aggressive, you may not be able to recover from a market drop. If it’s too conservative, your investment earnings may not keep up with the cost of living.

Your allocation may depend on your goals. For example, a portfolio designed to benefit your heirs or a charity when you pass away (legacy) may be more aggressive than one meant to cover basic living expenses. That’s because the goal has more capacity for market risk.

Want to learn more? Check out this article.

Primary goals supported: Contingency reserve, discretionary spending, legacy.
Primary risk lessened: Tax and policy.

How will you spend your money? An effective strategy can increase your peace of mind and the likelihood of reaching your goals. How much of your portfolio you spend will depend on many factors.

For example, if you think you’ll need to live off your portfolio for 40 years, your spending rate may be lower than if you expected to need that money for only 20 years. Your asset allocation may also determine your spending policy. For example, a conservative investment approach may mean a lower expected return. This in turn may require you to draw less from your savings. A more aggressive approach can do the opposite. But it could also expose you to more market risk.

Want to learn more? Check out this article.

Primary goals supported: Contingency reserve, discretionary spending, legacy.
Primary risk lessened: Tax and policy.

Governmental health insurance, such as Medicare, can help to provide a baseline level of protection against health risks. Additional private supplemental insurance can then be used fill additional gaps that may exist. Learn more about Medicare and supplemental insurance. But keep in mind buying insurance will reduce your assets. The three primary types of private insurance used in retirement are:

• Supplemental health insurance.
• Long-term care insurance and custodial care.
• Life insurance.

There are pluses to working past the typical retirement age. It can benefit you financially and emotionally to continue to earn a paycheck, challenge your mind, and have social interactions with colleagues. Just keep in mind that, as you get older, personal or health situations may not allow you to work as long as you might like.

A recent survey showed 73% of workers expected to work for pay in retirement. But only 23% of retirees actually do.****

Primary goals supported: Basic living expenses, discretionary spending.
Primary risk lessened: Market and investment.

Many retirees have a lot of their wealth in home equity. Here are some potential ways to use housing wealth in retirement:

• Reduced expenses from a paid-off home. Pay off a mortgage to eliminate a monthly payment.
• Downsizing. Sell a home and replace it with one that is more affordable and easier to maintain.
• Home equity loan. Use home equity as collateral against a loan.
• Reverse mortgage. Draw on home equity through a reverse mortgage line of credit.