Retirement is not what it used to be. Back when your parents retired, chances are they weren’t counting on a retirement that would last decades nor did they most likely plan on having a huge nest egg to get them through. For those of you either working towards retirement today or on the verge of it, you probably know that things are much different today. Having enough saved up is a legitimate concern for the majority of Americans when it comes to retirement. Even if you think you’ve planned enough, there are still various areas that a savings gap could arrive. For example, you can’t predict exactly how long you will live in retirement, so if you plan to live to a particular age, there is a chance you may live longer (or not as long) than you planned. That is a huge potential savings gap in retirement. In other words, will your nest egg be able to last long enough to get you through? You may not want to think about these things at this time, but you really should think about potential areas where a savings gap could arise in retirement. Maybe that means building up a larger nest egg. Or maybe it means having an emergency plan in place to cover unexpected bills. Or maybe you need to consider a part-time job in retirement to make ends meet. Whatever you need to do, you need to make sure that you are prepared for potential gaps in retirement. So, are you prepared for gaps in retirement?
Nobody likes to think about aging. After all, why would you want to think about getting old and all the aches and pains that goes along with it? However, if you want to live a comfortable retirement that’s financially feasible, you need to think about the costs that go along with aging. Growing old can be costly in America. Medical bills can really add up and they become even more unpredictable as you get older as our bodies are unable to recover like they did when we were young and spry. In particular, the costs of long-term care can be quite high and it has become a fairly common medical expense for many retirees. Long-term care includes both rooms at nursing facilities as well as having a private nurse or aide visiting daily to help care for you. Private nursing facilities can be costly, with a full year’s costs being upward of $60,000-$70,000 dollars as can visiting elder care services. Furthermore, you may find that you could require such care for years, thus making it a six figure expense. With all that in mind, you should think about whether long-term care will be a part of your future and how you plan to pay for it. You should look at your retirement goals and think about how a $150,000-$250,000 expense might fit in. Do you have enough saved to cover that? Do you need to adjust your goals to fit it into your retirement plans? It’s never to early to think about such a costly expense. No, you probably won’t be able to determine a set price for long-term care well in advance, but you might be able to do some research and learn what average costs are in your area (or the area you plan to retire to). Once you have such info, take the time to look at your retirement goals and savings and see where you might need to make changes. If you need help with doing so, you can always reach out to a certified financial planner or retirement expert. Is long term-care a part of your long term plans?
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
Could you weather a financial emergency given your current savings? Where would the money come from to cover something such as unexpected medical bills or a necessary home improvement expense? In such situations it can be tempting to divert money ear-marked for your retirement savings towards those unexpected bills. Yes, such a move will provide short-term relief and provide you with the needed funds, but in the long-term impact can be quite substantial. First off, don’t forget that the money you don’t put into your retirement account won’t have an opportunity to grow (i.e. through investments) and won’t be there later, when you need it. Secondly, if your employer offers contribution matching, you will be missing out on extra money being put into your account. Employers won’t match if you don’t make any contributions of your own. Furthermore, if you are decades away from retirement, those matching contributions could add a nice chunk of money of your retirement savings without you having to do anything. While it might be tempting to stop making contributions for a short time–like a few months–with the belief that such a move won’t have a big effect, you should really avoid such thinking. Any suspension of contributions to your retirement savings should only be done as an absolute last resort and should be avoided at all costs. The key to retirement saving is being consistent with saving. If you do find that you need help with arranging your finances to cover an unexpected expense or want to just have a plan in place to cover an emergency, you should speak with a certified financial planner.
Social Security isn’t going anywhere anytime soon, but it’s also not what it used to be. Yes, it can still be a part of your retirement plans, but the days of such benefits being a large part of your retirement savings are long gone. Since Social Security won’t pay the bulk of your bills, you have an opportunity to be a bit strategic with what you do with that money. For example, you could earmark it in advance to be put towards particular bills or invest it and help grow your nest egg. What’s important is that you do something beneficial with it to help take some of the pressure off your other retirement savings. However, you still need to be careful that it doesn’t play too crucial of a role in your retirement plans as there is always the potential for Social Security benefits cuts in the future. Don’t forget too that your current earnings will determine the size of your Social Security payments, so you need to think about that as well. If you need help in determining just what role Social Security will play in funding your retirement, you should talk with a certified financial planner.