Retirement can seem like a long ways off as you make your way through your career–and, of course, life–during your 20s, 30s, and 40s. However, when you get into your 50s, suddenly it might not seem so far off in the distance. Your early 50s, in particular, are a really good time to get serious about retirement. What does it mean to “get serious” about retirement? It means sitting down and taking a long, hard look at where your finances stand and when exactly you want to retire. You will also want to reassess your retirement goals and get a good understanding of what life in retirement will be like. What will your retirement budget be? Do you plan on paying down your debt before retiring? Are you going to move for retirement? These are some important questions you will need to ask yourself as you near retirement age. The answers may surprise you and will give you a good sense of what is realistic regarding retirement. Now, I’m not saying you need to wait until your 50s to get serious about retirement (the earlier you start, the better), but I am encouraging you to not wait until your late 50s/early 60s to start thinking about your post-work life. Remember, retirement is serious business that requires a plan and hard work, both before and during. Taking the time to properly prepare for it so that you can enjoy it is very important. So, are you ready for retirement?
People are losing jobs. It’s what happens when the economy takes a turn for the worst. For those over 50, right now can be a downright scary atmosphere. Not only are people losing jobs, but it’s getting harder for those over 50 to get either their old jobs back or a similar job. This was true back after 2009–after the most recent recession–and it’s true now. For many people over 50, especially those over 60, they may just choose to stay jobless after all this is over; they’ll essentially retire. They will effectively be forced into retirement. Now, that doesn’t sound like the worst scenario, but it can be a nightmare. Imagine saving up for a particular retirement and setting plans and goals and then being forced to start tapping into your savings years before you intended to. Suddenly, that nest egg might not seem so large and you weren’t mentally prepared to exit the workforce. This probably is not ideal for many and will likely cause many older Americans to start tapping into their retirement funds sooner than anticipated. It will also force many Americans to reassess their retirement plans and to make changes to how they planned to live out retirement. It can be somewhat traumatic to have to change plans that you had been working towards for years, or even decades. If you do find yourself facing an early retirement, don’t freak out. Take a deep breath and think about the options available to you and whether they fit into your life plans. Can you get by on unemployment for a while? Is now a good time to switch industries or find work in another area? Would it really hurt to start taking money out of your nest egg now? Thinking about these questions can help you either fight the urge to retire or allow you to slide into retirement in a calmer mood.
As many of you may be aware, the SECURE Act that was recently signed into law made some big changes to retirement for many Americans. Along with opening up opportunities for small businesses to band to together to offer retirement benefits, it raised the age for required minimum distributions (RMDs) to 72. However, that new age for taking RMDs doesn’t go into effect immediately or retroactively. If you turned 70 1/2 in 2019 and thought you could wait a year an a half to take your first RMD, well, that’s not the case. The option to wait until you are 72 to start taking RMDs is only in effect for those who turn 70 1/2 after December 31, 2019. That means if you 70 1/2 in 2019, you have until April 1, 2020 to take your RMD. If you turned 70 1/2 after the first of the year, then you can wait until April 1 of the year after the year you turned 72. For example, if you turned 70 1/2 on February 1, 2020, then you can delay taking your RMD until the year after you turn 72 (that deadline would be April 1, 2022, in this instance). This can be a bit confusing, especially if you turned 70 1/2 during the latter half of 2019. Therefore, if you have questions about whether you should take an RMD, you should talk with a certified financial planner or with your retirement plan custodian. They should be able to answer any questions you may have.
I’ve written about the SECURE Act here many times in recent months as it is legislation that could open up a lot of retirement saving opportunities for a wide swath of Americans. Officially titled as “The Setting Every Community Up for Retirement Enhancement Act of 2019,” this bill could allow for small businesses to band together to offer retirement savings plan benefits, increase the age for required minimum distributions (RMDs), and allow IRA and 401(k) plan holders to purchase annuities with money in the accounts. While all those a good things, this post is really going to focus on the age for taking RMDs and how pushing it back could be a good thing–or something that doesn’t matter at all. For those who want to continue working into your 70s, the thought of delaying RMDs can be quite enticing. I mean, if you’re earning income, then why would you want to touch your retirement savings? However, according to some experts, that really may not matter as most Americans probably won’t work past 70 1/2. The SECURE Act is looking to push the required age for taking RMDs back by about 18 months to age 72. On average, that would save retirees about $33,500, but that really isn’t much, especially if your retirement lasts decades. This leads to my next question, will you need your RMDs at 70 1/2? If not, what do you plan on doing with the money? Will you invest it? Give to charity? These are things you should be thinking about as you move towards retirement, especially if you plan on retiring past the required RMD age. If you need ideas as to what to do with your RMDs, you should speak with a certified financial planner.
THE SETTING EVERY COMMUNITY UP FOR RETIREMENT
ENHANCEMENT ACT OF 2019
Many people say they plan to continue working during retirement, but few actually follow through with such intentions. In fact, according to research recently done by the Employee Benefit Research Institute, about 80% of future retirees say they plan to keep working in retirement. Do you know how many actually do? A little over 25%. That’s a pretty big discrepancy. Now, there are various reasons why people don’t end up working during retirement–from health issues to not finding a job that they are suited for. If you are really serious about working during retirement, though, you should take steps before you retire to increase your odds of finding employment. If you plan on remaining within your field–many retirees get into consulting work for the flexibility–you will want to make sure your skills and abilities remain current. While this is something you probably do throughout your career, it’s particularly important as you grow older as it can help you remain relevant and appealing to potential clients and companies. Now, many retirees go the opposite route and decide to start a business during retirement, often outside their original career. If this appeals to you, you should again take steps before you retirement to make it a reality. That means obtaining any necessary financing while you are working and taking the steps to incorporate or build up your business before you retire. This can help you to make sure that you are covering start-up fees and costs while you are still earning income and can allow you to make sure that the business you are starting is right for you. Now, regardless of what you decide to do for work during retirement, you will want to have a network to turn to to help you either gain customers or find work. You should be building that network up well before you hit retirement so that it can be easily tapped when you need to do so. As you can see, there are pre-retirement steps you should take if you plan on working during your twilight years. Working in retirement can be fulfilling and a great way to stay active and sharp as you age, which can provide added health benefits and a longer life. However, just make sure that working in retirement is right for you and that you take the steps to set yourself up for success in doing so.
Finances can be a taboo topic for many Americans. Such conversations can lead to anxiety and fear about potential outcomes or whether you are doing things correctly. However, these feelings should not prevent you from having important discussions with friends and family members about your future financial plans. These conversations can be valuable and can avoid a lot of confusion. For example, if you have children or grandchildren that you plan on leaving money to, you may want to discuss that with them so that they can start thinking about what they want to do with that money. Or, if you have certain funds that you want used in certain situations as you get older, you may want to talk to family and friends who may have to make decisions regarding that money if you eventually find yourself incapable of doing so. Yes, those conversations may be difficult, but they are worth having and can help to avoid potential drama and issues in the future. You also don’t have to be the one retiring to have these conversations. If you have parents that are retired, but haven’t talked to you about their future financial plans, you may want to broach the topic yourself. Having such a conversation can provide a relief for both you and your parents once it occurs. It can allow you to formulate better plans for your own money as well as give you a sense as to your parents finances and how they want that money used or spent. So, are you ready to have the money talk?
In past blog posts, I’ve written about how working past age 65 is a reality that many Americans face because they don’t have enough saved for retirement. However, I haven’t really acknowledged that a number of Americans work past age 65 not because they need the money, but because they can and they want to. Many members of the Baby Boomer generation are working past 65 because they are healthier at that age than generations before them. They remain active well into their 70s. Furthermore, Baby Boomers are very well educated and want to continue to put that education–and the skills acquired as part of that–as long as they can. Yes, many Baby Boomers do work well into their 60s out of necessity and to further build up their nest egg, but the number working because they want to is also a larger proportion compared to the past. If you plan on working past the traditional retirement age, are you doing so because you want to or because you have to? If you are doing so because you want to, are you taking steps to maximize that time, such as delaying requirement minimum distributions (RMDs) or putting more money into your nest egg? If you are working past age 65, you will want to make sure it is a positive for your retirement savings and to avoid a situation where you have to tap into your retirement funds when you reach a particular age.
As you move through the retirement saving journey and into retirement, there are certain age points that you will need to be aware of. These age points allow you to do things that will help you both in saving for retirement and once you actually cross into retired life. The first major age point is when you reach 59 1/2, at which time you can begin taking distributions–from most retirement accounts–without a penalty. This can be huge for people who are planning to retire in their early 60s and who may need to tap into their retirement funds sooner than most. The next important age is 62, which is when Social Security benefits kick in, again a point that is key for people who may be retiring early or who may be forced to retire sooner than intended. The next important age milestone is 65 at which point you are eligible for Medicare, which again can be important for those who may intending to rely on it in retirement. The next age–and probably the most important age in retirement planning–is age 70 1/2, which is when required minimum distributions (RMDs) begin. This age is commonly used as a key point in most retirement plans as people decide whether they want to begin taking RMDs or see if they could delay them by continuing to work. It’s also an age that people are usually retired by or set as the age at which they will retire. It’s important to remember that these ages are when things begin and not necessarily when you need to start using the benefits that become available at that time. If you are early in the retirement saving and planning process and have years (or decades) to go, it might also be a good idea to consider how these dates may impact your retirement plans or whether you may need to adjust your plans to best take advantage of these ages.
Do you know your options should you inherit an IRA from a spouse? There are often multiple choices regarding what you can do with the money. Furthermore, your options may be impacted by your spouse’s age when they passed, especially if they are under the age of 70½. Your age may also play a factor into your decision. One common option is to roll the IRA money into your own IRA and begin taking required minimum distributions (RMDs) either immediately if you are over age 70½ or when you turn 70½ if you are under that age at the time of the rollover. Another option is to create an inherited IRA, on which the RMDs don’t kick in until the deceased spouse would have reached 70½. The first option might be most effective if you are close in age and are either just at or very near to 70 1/2 because there really won’t be much of an opportunity for the money to grow before RMDs start. The second option works best if you find that you have time for the money to grow. Such a situation might be if your spouse passed in his/her late 50s or early 60s and you have a number of years for the IRA to increase in value. However, another option–and a creative one at that–is a combination of both the aforementioned possibilities. This option involves creating a inherited IRA and then rolling the money over to your account with a spousal rollover right before the date at which your spouse would have reached age 70½. This allows you to let the money in the inherited IRA to grow and not be hit with RMDs until you really need it. This option may be appealing a surviving spouse who is much older than the spouse who passed. This will allow the older spouse to use their own IRA money first and let the inherited IRA grow before rolling it over and taking RMDs on it. This last option might not be for everyone as it may not be worth it for everyone, especially couples who are close in age or where the spouse who passed was right on the cusp of RMD taking age. However, regardless which option you choose to pursue, you should talk with a certified financial planner or retirement specialist first to make sure that you are making the right decision and doing things correctly.
While you may have plans to retire at a particular age, life and your career may dictate otherwise. Certain scenarios may arise that may force you to think long and hard about retiring sooner than anticipated. A major company restructuring or other organizational changes may make retirement seem more appetizing than continuing working. Furthermore, general discontent with your career can be another driver of the decision to retire earlier than intended. If you’ve been consistent with your retirement saving and focused on saving as much as possible, you may be okay, especially if you are within a year or two of your intended retirement age. However, if you find that you’re considering retiring more than a few years earlier than intended, you may have some struggles ahead of you and you may need to think about ways to potentially alleviate those issues. If you are in a situation where you think that you may run into a scenario where you may retire sooner than you’d like–for example, your company has a policy or reputation of forcing people out at a particular age–you will want to start saving for that possibility sooner rather than later. That means taking advantage of catch-up contributions as soon as you turn 50 as well as employer matching benefits. You will also want to make sure that you max out contributions too. Finally, whether you are looking to save more in anticipation of a possible early retirement or are on the cusp of making such a decision, you should speak with a certified financial planner.