It is that time of year. My accountant yesterday sent my husband and me a note asking how much we planned to contribute to our retirement accounts for 2020. viouslybviamente, this makes a difference in our outstanding tax bill.
I sighed. Our contributions are fully deductible, as neither has any plan provided by the employer. But last year was a painful time for the self-employed like us and our budget has been cut. My talking business stopped in March. All my reserved speeches have been canceled.
Finding the cash that needs to be raised right now can and will be done, but it gave us a break to figure out where to leverage the funds to allocate.
I may share too much, but at our age it made us pause and think: should we really continue to contribute to a retirement account? My husband is nearing the time when he will start making the minimum distributions required by law within 72 years of his tax-deferred retirement accounts. (If you turn 70 ½ in 2020 or later, you must take your first RMD before April 1 of the year after reaching age 72.)
Read: A new law would force employees to save for retirement
Does the tax benefit guarantee contributions right now? Is it the safeguard of keeping our money growing and aggravating taxes until withdrawal? Is our safety net to fund lives that can reach over 100?
The answer to these questions for us is: Yes.
“Because the SECURE Act removed the age from which you must make distributions, it still makes sense to fund a retirement account,” says Sarah Heegaard Rush, a certified financial organizer at Lincoln Financial Advisors. “And life expectancy has increased, so it’s a good idea to plan for retirement at age 95,” he says.
We are not alone in the fight against the financing of retirement plans.
Read: Once considered at the peak of retirement, these people are taking a “gap year” after they have been successful
The recession of the pandemic in retirement accounts
According to Fidelity Investments’ new “2021” retirement planning study, more than eight out of ten Americans indicate that last year’s events have affected their retirement plans, by a third (34% of boomers). ) which he estimates will take him two to three years to get back on track, due to factors such as job loss or retirement withdrawal.
Still, a whopping 82% are confident that they will achieve their retirement goals. In particular, men are more confident: 55% say they are “very safe” compared to only 39% of women. While many are frustrated (30%) or angry (11%), almost half (45%) are hopeful or determined to get back on track.
“People in their 50s now realize that retirement is approaching, but there’s still a lot of life ahead of them,” says Rita Assaf, vice president of Fidelity, Retirement and College Leadership. “This is where saving for retirement becomes even more important, because people start making decisions about how and when they would like to retire. To achieve those goals and make sure they can cope with the unexpected, like now what is needed for healthcare is even more important to make sure you have enough savings. “
Now this is where the new Fidelity findings really bothered me and reminded me once again that there must be a frantic cry in this country to increase financial education for all ages.
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When asked how much someone should save for retirement, only 25% of respondents accurately indicated that financial professionals recommend having 10-12 times the last full year of work income when they reach retirement. retirement. According to the report, half of the respondents thought the figure would be only 5 times or less.
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Nearly one in three (28%) said financial professionals would recommend a withdrawal rate of 10 to 15% of retirement savings each year. Most financial planners suggest a rate of 4 to 6% per year.
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Most respondents underestimated the cost of out-of-pocket health care for a retired couple, with 37% guessing between $ 50,000 and $ 100,000. In fact, for a couple retiring at age 65, the actual average cost during their entire retirement is three times higher, at $ 295,0003, according to Fidelity’s number of faithful.
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Regarding the impact of divorce on Social Security: 63% of respondents believe that a former spouse has the ability to reduce their monthly benefits, the truth is that Social Security benefit is not reduced if an ex-spouse claims some of its Social Security benefits. . But the rules of claim are complicated.
Why some women are at risk of retirement
Finally, now that I have your attention on the need to save myself for retirement, I would stop being on my podium to care for women and future financial security.
For women aged 55 to 64, the divorce rate has tripled since 1990; for women 65 and older, it has multiplied by six. I say no more. Widowhood factor and the image is darker. In any case, women end up having financial success with the loss of a spouse, and it often cruelly affects their future financial security.
In fact, in 2018, women accounted for 74% of single households aged 80 and over. Although the gap in life between men and women has narrowed, we can expect that over the next two decades there will still be more women than men over the age of 80 living alone.
My expert on women and money issues is Cindy Hounsell, president of the Women’s Institute for Safe Retirement (WISER), based in Washington, DC. He recently wrote a blog for the Social Security Administration website that is worth reading; Three tips for retirement planning for women.
The main takeaway: “Your Social Security benefit payments will only provide a portion of your retirement income,” Hounsell writes. “This means you will need to save more to have adequate income for your desired lifestyle during retirement. Savings should be an active part of your plan to take care of yourself and your family’s financial future. ”.
Read: Why is it so hard for women to save for retirement?
And two final tips:
“One way 50-year-olds can pick up the pace is by allowing‘ recovery ’contributions to IRAs, 401 (k) if HSAs (over 55s),” says Assaf of Fidelity.
If you’re 50 or older, you can add an additional $ 6,500 a year in “recovery” contributions, in addition to the 401 (k) contributions you’ve made. (The IRS has extended the April 15 deadline to file and pay federal income taxes and IRA contributions from 2020 through May 17.)
“Taking advantage of these contributions can provide a significant boost to your retirement savings,” he advises.
Second, if you are self-employed like my husband and I and have no retirement plan in the workplace, consider a traditional IRA, SEP-IRA, or Roth, and set an amount to automate regular deposits. each month on retirement savings account. Then, when your accountant calls about your annual contribution, you will have already set those funds aside. Easy.
Read: It’s not too late to save on your 2020 tax bill – here’s how to do it
Kerry Hannon is an expert and strategist in work and employment, entrepreneurship, personal finance and retirement. Kerry is the author of more than a dozen books, including Great Pajama Jobs: Your Complete Guide to Working From Home, Never Too Old To Rich: The Entrepreneurs Guide to Starting a Mid-Life Business, Great Jobs for Everyone 50+ , and Confidence in money. Follow her on Twitter @kerryhannon.