Are you financially prepared to retire?

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By Dave Carpenter

It’s unusual to feel financially well prepared for retirement. That’s due partly to the poor performance of stocks over the past decade. But mostly it’s due to not socking enough money away.

Here are some questions to ask yourself:

•How much will I need to retire?

A rough guideline is you’ll need to replace 75 to 85 percent of your preretirement income to maintain the same lifestyle. Social Security will help, but may not be enough; the average monthly check is $1,160. Visit www.ssa.gov to estimate your retirement benefits.

•Am I saving enough?

Guessing isn’t good enough. At a minimum, plug in some numbers at a free online retirement calculator. AARP (aarp.org) and the Employee Benefit Research Institute (choosetosave.org/ballpark) can help.

•Am I burdened by debt?

Make it a priority to pay off your mortgage and any other major obligations before you retire. But if you’re paying more than about a third of your pretax income on all debts, you’ve probably borrowed too much. Consider how you can cut back to increase savings.

•How much can I withdraw in retirement?

The 4 percent rule advocated by many planners holds that if you withdraw no more than 4 percent of your portfolio in the first year of retirement and then increase that amount for inflation each year, your money should last at least 30 years. That rough guideline factors in expected earnings on your portfolio and inflation.

To estimate what you will need to save for the first year of retirement, multiply what you’ll need to withdraw from your account by 25 (this equates the amount to 4 percent). So if you anticipate needing $50,000, you should have $50,000 times 25, or $1.25 million saved.

•Do I have the right mix of investments?

A rule of thumb is that you should subtract your age from 100, and put that percentage of your savings in stocks and the rest in bonds. But with Americans’ lifespans increasing, many advisers say that’s too conservative and leaves you at risk of falling behind inflation and running out of money. Some suggest subtracting your age from 120 instead.

•Do I have an estate plan?

Long before retirement, everyone should have an up-to-date estate plan with a will, beneficiaries for all accounts, a durable power of attorney, a health-care proxy or living will, and possibly trusts for any minor children.

•Am I properly insured?

An unexpected setback could derail your plans.

Make sure you’re up to date on life, disability, homeowners, and liability insurance. And consider getting long-term care insurance in you are in your 50s or early 60s. Figure out which coverage would be the best fit by checking sites such as www.longtermcare.gov. — AP