Here Are the 5 Things You Should Be Saving for in Retirement

spoiler: healthcare’s a biggie

what to save for retirement
Paula Boudes/PureWow

Maybe you’re fresh out of college working the dream job. Or you’re a parent just trying to get through the week without dropping six thousand balls. Amid chasing dreams and children around, there’s still one thing everyone needs to do: save for retirement. After all, preparing well during your working life can set you up for less stress in the golden years. We checked in with Lorna Kapusta, head of women and engagement at Fidelity Investments, about the five things you should be thinking about as you prepare for retirement…even if retirement feels a world away.

Meet the Expert

Lorna Kapusta is the Head of Women and Engagement at Fidelity Investments. She travels across the country speaking at seminars and empowering women to take control of their finances. Previously, Kapusta was a vice president at American Express. She holds an MBA from New York University's Leonard N. Stern School of Business.

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1. Medical Expenses

According to one study, women live, on average, about six years longer than men. That means they may shoulder more medical expenses over the course of retirement, and as we all know, healthcare isn’t cheap. According to a study conducted by Fidelity, women often underestimate the amount of savings they’ll need to put towards medical care. Women typically expect to set aside $98,000, but the more accurate sum, according to Fidelity’s retiree health care cost estimate, is $165,000.

That’s a lot of money and you may be wondering where to start. Kapusta says the best things you can do are to start saving as early as possible and take advantage of a Health Savings Account (HSA) if they’re available to you.

“HSAs offer a ‘triple tax advantage’ meaning contributions are tax-deductible; account money can be spent tax-free when used for qualified medical expenses and any potential growth is tax-free, too,” she explains.

2. Long-Term Care

Hand in hand with medical expenses is long-term care, which the $165,000 figure doesn’t account for. The Department of Health and Human Services estimates that there is a 70 percent chance someone 65 or older will require long-term care.

“Services like in-home care or assisted living can cost upwards of $50,000 a year,” Kapusta notes. “So many of us have experienced this with our parents and may have had to contribute ourselves, so now is the time to put some extra money away to avoid passing those costs on to family and loved ones. “

3. Desired Retirement Lifestyle

Yes, retirement could mean that you basically live on a cruise ship 300 days of the year...but you have to have budgeted for that lifestyle. Kapusta says it’s important to evaluate what you want your retirement to look like so that you can plan for the anticipated costs of maintaining that standard of living.

“Think about what you want to achieve in retirement—it could be living in a retirement community, buying a small boat, even traveling more,” she elaborates. “This is why sitting down to think about those goals and working with a financial professional to estimate your monthly expenses in retirement is so critical. We work so hard throughout life and deserve to have the retirement of our dreams.”

Another thing to consider is college gifting. After all, you may already be saving for your own kids, but if you end up having grandchildren, you may want to contribute to their education as well. (Student loans are no joke.) “But remember, you can always take out loans for a child's education. You can't take out loans for retirement—it's still best to prioritize yourself,” she advises.

4. The Impact of Caregiving

“In terms of financial considerations, most people look at the cost of childcare or helping an aging loved one vs. the cost of stepping out of the workforce,” Kapusta says. “It’s important to know that there are implications beyond just salary. People often do a 1:1 comparison against their take-home pay, but it’s much more than that.”

She explains that by stepping out of the workforce, you lose, in addition to your own 401(k) or 403(b) contributions, the “free money” in the form of your employer match, plus the compounding growth overtime. You’re also no longer contributing to the Social Security system, and what you receive is calculated on your highest 35 years of earnings. In order to qualify for this benefit, you also have to have worked for a minimum of 10 years.

“To look at a hypothetical scenario, if a 35-year-old woman making $75,000 took just one year away from her career, she could have almost $160,000 less in retirement savings by the time she’s 67 years old,” Kapusta illustrates. “When you consider how much women need to save for healthcare in retirement, for example, that can make a big difference.” Of course, childcare needs are different for every family. Just bear in mind the implications of the decision as you weigh the pros and cons.

5. The 4% Rule

The Wall Street Journal wrote that the four percent rule is back, and Kapusta affirms that it remains best practice. The rule states that you should withdraw no more than four percent of your savings in the first year of retirement.

“In general, we recommend that you withdraw four to five percent of your initial retirement savings, but that should be adjusted if you plan to retire earlier or later than age 67,” she says. “Ideally, your essential expenses could be covered by Social Security or other guaranteed income sources such as annuities, as these keep up with inflation, but again, women typically receive less in Social Security benefits so it’s still important to save. Non-essential expenses could be covered by your savings or investment income, but if the market goes down, this is where you might want to cut down on spending to avoid cutting into your day-to-day living expenses.”

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