Are you on track to retire?

[MUSIC PLAYING] Did you ever imagine that this is what your retirement would look like? How can you imagine this? What are the three key questions I need to ask myself as I get closer to retirement? Who are you planning for? What do you want to do in retirement? And then the fun one: Can you achieve it? Are your costs in retirement what you expected? I don't know what I expected, really. There's no better feeling than telling someone, you are on track. You can do it. [MUSIC PLAYING]     You've been dreaming of your perfect retirement for years, and now it's starting to get real. Are you ready? Have you saved enough? And how do you make your money last? Hi, I'm Ally Donnelly, and this is Money Unscripted, a podcast from Fidelity Investments. Today we're sharing tips on everything from creating a retirement budget to maximizing your retirement income. But first, meet Paula. She's 80 years old, going on African safaris, studying penguins in Antarctica. I asked her how she affords it all, and here's the thing: She didn't start investing until she was in her 40s. She says it's never too late to do anything. You are kissing a cheetah. Yes, I am kissing a cheetah, and it was the thrill of a lifetime. Paula Wright has been all over the world. I've done 92 countries and all seven continents-- South Africa, Zambia, Zimbabwe, Vietnam, Cambodia, the Arctic, the Antarctic. It's hard to name them all. How do you afford these trips? I save up, and I keep a pot of money aside for the trips. And I go. Well, it's taken a bit more work than that. Let's rewind a few decades. You were a single mom raising two kids. You put yourself through school while full-time working as an engineer. How did you think about your financial future or your financial plan? I was surviving. But I got a good job, and I went back to school. And then I was able to move up the corporate ladder. When did you start thinking about investments? I was in my 40s. I was in my later 40s, I believe. So, what did you do financially? What did you put into place? Was it 401(k)? Or what did you do? Well, I had a 401(k), yes, and I invested in some stocks as well. Paula eventually got married again to her second husband, Richard. He was retired Navy. And in terms of finances, he couldn't have cared less. [LAUGHS] So, I did all the financial planning. As the years ticked on, those investments she made grew, and she decided to retire at just 56 so the couple could spend more time traveling together. The first thing I did was I paid off my mortgage because that was the biggest thing keeping me working. And fortunately, I had some stock options. So, I just cashed them in, and I paid off my house. And I had some investments as well, and I have a retirement income. We always said we don't ever want to have to say we should have done something. But the day after I retired, we found out he had terminal cancer. The day after I retired. So, we traveled for the-- he had been given 90 days, nine months maybe, and he made it six years. And we traveled as much as we could during that time frame. And then his very last words to me were, “Promise me you won't stop traveling.” Aw. And so, I haven't. Aw, that's lovely, Paula. You had thought you would have both of your retirement incomes to travel on. Tell me about that. Well, he was because he had disability plus his regular Navy retirement. He had a pretty decent income. And so that helped us during that time frame. When he passed, that all went away. And oh, this is the elephant that kissed me, and I got a close-up of his eye. Oh, wow. He was just a sweetheart. How do you make sure you can afford those trips now and still live your retirement life? Well, I cut back on other things. I don't go crazy buying clothes, as you can tell. [LAUGHTER] You look great. I don't spend more than I have to. And if I see that I'm running close to the line, then I do a fewer trips. Then what about how you leverage your investments? In terms of travel, I live on my dividends. From your brokerage account? From my brokerage account and my RMD. Your required minimum distributions. Right, exactly. OK. And some of the dividends, the ones I don't use, I reinvest so that I've got more to work with. Are your costs in retirement what you expected? Oh, gosh. I don't know what I expected, really. Yeah. I really don't. Obviously, inflation has taken its toll. Yeah. But I don't know how to explain this. I haven't really had an issue. This is from Morocco, as is this. To save money on her trips, she travels with a not-for-profit educational company called Road Scholar, and she volunteers with animal welfare groups abroad. I get up close and personal with the animals, which is even better and less expensive. Yeah. And what advice would you give to others planning, looking toward retirement? Well, definitely invest if you can afford to. But put what you can aside. And plan and figure out what you're going to have for income. And then figure out what you can do, and do as much as you can because you never know. Is that a rainbow? Yes. Oh. It was perfect. Oh. It was absolutely perfect. [MUSIC PLAYING]   Paula is living her dream retirement. She made it happen. So what about the rest of us inching ever closer? Fidelity VP Andy Alvarez is here to help us create a plan to retire with confidence. Hey, Andy. Hey, Ally. Thanks for having me. Andy, we saw how planning ahead really helped Paula. But if I'm 10 years or even 5 years away from retirement, what are the key things I need to have covered off on or those conversations, those questions I need to have asked myself? Yeah, and what a retirement Paula is living, right? Petting cheetahs. Amazing. At 80. At 80. Unbelievable. It's a question we often get, right, and there's really three key things we need to think about in retirement. First is, who are we planning for? What do we want to do in retirement? And of course, the most fun one, are we on track? Can we do it? I want to start with that last one because I'm sure you get it a lot. And it's what I think about, right? Am I on track? How do you answer that? Yeah, it is the biggest question. And arguably it's the one we have the most fun with because there's no better feeling than telling someone, “You are on track. You can do it.” It really does come back to those first two questions of really understanding for every individual, who are you planning for? Who are those individuals that are most important in your lives? And what do you want to do in retirement? What do you envision? And how do you want that to play out? So that's travel. That's golf. That's having a second home. Yeah, ultimately, it's really understanding, what are the essential things in retirement? What are those things that you can't live without? For Paula, it's travel, right? And what are those discretionary? Maybe the second home is a nice to have but not a need to have. Yeah, yeah. Maybe it's leaving a legacy to your kids or grandkids. It's really understanding how you're thinking about that and what's most important. Yeah. It's interesting. When I think about my retirement vision, I had a vision in my head. And I was on a lake in a house. My grandkids are running all around slamming the screen door, and I was going to leave them the house for generations to come. And then I looped in my husband, and he was like, “I hate lakes.” [LAUGHS] So how do you include your partner? Or how big should that circle get as you're thinking about these conversations? Yeah. By the way, same vision, so I love the lake life. I'm with you on that. We'll be neighbors. You'd be surprised how often it is the case, when you have two partners planning together, where they absolutely have different visions because it's not something we talk about at the dinner table every night, right? It's so important to include, at the very least, those who are going to be directly impacted by your retirement. So, it could be a spouse, a partner. It could be kids and grandkids. But the more you can include them, the better. No matter what I decide on that vision or what my plan is for retirement, I have to pay for it. So how do I start thinking about creating a budget? As you start thinking about it, it's really understanding, again, back to those essentials, what is essential in retirement? What are those discretionary expenses? And then starting to look at, what's your income look like? Can we create a standard of living that we can never go below? And then how do you think about protecting it? There's so many different ways to protect it. So when we think about drawing income in retirement, certainly many retirees think about Social Security. Some retirees are lucky enough to have pensions. But then there's also, how do you get money out of your own investment accounts? How do you think about ways to create your own pensions or your own guaranteed sources of income in addition to getting growth through many different vehicles that are out there? But if I'm in my 50s and I'm not retiring for, say, another 10 years or more, how close to reality am I really going to get in that budget planning? And it's difficult, right? Because there's expenses that we know today, and there's a lot of unknown expenses that we maybe aren't even thinking about. We typically say plan for about 80% of your current income that you'll use in retirement. Healthcare is a big part of that. It might even be 15% if your expenses are tied to health. So, you'll get a sense. We can get an idea. The more things you can start to notate of what it costs each month, each year will help. But ultimately, we also know that, as we plan, there's got to be some wiggle room because we're not going to get it right. And we're really not going to figure it out probably until we're a few years into retirement. There's other expenses we really need to be mindful in retirement. Think about your mortgage costs. Even if it's paid off, where are you going to live? What are your plans? There's a lot of expenses that we'll need to build in throughout retirement, even beyond healthcare, which is ultimately a big concern for retirees. But I thought I read that retirees often overestimate their housing costs, so that might be a way-- that might be some wiggle room. There absolutely could be wiggle room. And there's other things we need to think about, too. What are expenses you have today that you might not have in the future? And then also, what are some of those expenses that are going to come into play in retirement? Yeah. Maybe you're not traveling around the world today but that's a big plan of yours as you go into retirement -- and understanding what some of those different give and take could be. Yeah. I always think about my mom now is on a journey of dementia. And I think, OK, well, maybe I wasn't considering x before, but I should plan for y, I think it… Absolutely. Long-term care is another really large and unknown expense. And again, there's a lot of planning that you can do around that, whether it's something you want to self-insure or look to ways to insure against long-term care costs. Yeah. Just like we're saying there, every situation is different. So, are there guidelines for me to try and make my retirement money last? Absolutely there are. And I like the word you use, "guidelines," because, to your point, every situation is unique. Ultimately, there is that magical number that we think of right around that 4% to 5% withdrawal rate, meaning the amount of money you can take out of your savings any given year. What's important to understand with that is that, as the market moves, your income could move with it. And so, you have to adjust that. That's why, in retirement, in addition to the 4% to 5%, we look to see what are the other sources of income that you could generate? Again, thinking back to that Social Security, that pension, or creating your own pension through different investment vehicles that exist. The other thing that really impacts that is when you retire. If you're an early retiree and you're retiring in 55, 60 years old, before Medicare even kicks in, you really might need to think about, how do I cover those medical expenses before I get that additional help? If I'm retiring later in life, maybe I don't need the money to last as long. Maybe I'm moving in retirement. So maybe I'm living somewhere that has a higher cost of living or higher taxes. If I move to a different location, how does that impact my taxes, my cost of living? Again, it comes down to really understanding each individual, what they're trying to do, and where they're trying to do it, and when they're trying to do it, so a lot of factors to consider. So doing that personal math equation for yourself, like, for Paula she was, for travel anyway, living off her dividends and her RMDs. Yeah, so the required minimum distribution is another thing, again, to factor in. Once you hit a certain age, you're going to be required to take out some of those retirement savings. That could be more or less in that 4% to 5%, depending on how old you are. Yeah, OK. Creating your own retirement paycheck. Exactly. As we look at that time horizon, we keep saying, if you're 10 years, if you're 5 years, if you're 20 years, for a lot of us, you think, oh, well, if you're five years out, that's it, right? Maybe we're not significantly changing the amount we're going to save over the next five years, but we could certainly change how we're invested. We could also really think about, hey, are there ways that I can impact my expenses in retirement? Or is there a job I want to do out of enjoyment and get some additional income if I need it? So, there are different questions really depending on how far out you are and ultimately what you want that future to look like. Hit me one more time with those three key questions I should be asking as I get closer to retirement. Yeah, so I'll start with the first one, which is, who are you planning for? Really take some time and really think about, who are the people that are going to be most impacted when I retire? We've often found there's family members out there we forget about that really depend on us. Yeah, yeah. The second question is, what do you want to do? And most importantly, maybe start to itemize, how important are those things? What's really essential? What's essential today may be different than what's essential in the future. And what's discretionary? What are you willing to give up maybe in a given year? And then finally, if you have those two right, start to try to understand, what might it cost? Am I on track? What do my current investments look like? That can start to get you on track of understanding, what are the changes or levers I might want to pull to help me get there? Levers, I love it. If people are walking away from this conversation with just one or two things, what would you really hope those takeaways to be? First and foremost, start planning as early as you can. If you're retiring next year, great. Go start planning. If you're retiring 20 years from now, fantastic. The more time you give yourself, the better. But it's never too late to start planning. So really start to sit down and map out what you want that future to look like. Secondly, understand there is no ‘one size fits all.’ There are so many different levers that you can pull. And the more you explore, you'll hopefully find strategies that are unique and customized that will help you achieve what you're looking to do in retirement. Awesome. I'll see you at our lake houses I can't wait. [LAUGHS] Thanks, Andy. And we've got even more resources to help you create your personal retirement roadmap. Check out our show notes or our website at Fidelity.com/MoneyUnscripted. And if this was helpful to you, help somebody else. Share the podcast with them. We'll see you next time on Money Unscripted. It's your life. Get your money's worth. [MUSIC PLAYING]   Disclosures: Investing involves risk, including risk of loss.     This information is intended to be educational and is not tailored to the investment needs of any specific investor.    Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. 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