It is that time of year. My accountant sent my husband and me a note yesterday asking us how much we planned to contribute to our retirement accounts for 2020. Obviously, that makes a difference to our outstanding tax bill.
I sighed. Our contributions are fully deductible as neither of us has an employer-provided plan. But last year was tough for freelancers like us, and our budget has been tight. My speaking business stopped in March. All my reserved speeches canceled.
Finding the cash to save right now can and will be done, but it gave us a pause to figure out where to leverage the funds to reserve.
Maybe he’s sharing too much, but at our age, it made us stop and think, should we really keep contributing to a retirement account? My husband is approaching the time when he will begin taking the minimum distributions required by law to all 72 of his tax-deferred retirement accounts. (If you turn 70 1/2 in 2020 or later, you must take your first RMD by April 1 of the year after age 72)
Read: A new law would require employees to save for retirement
Does the tax benefit justify contributions at this time? Is the safeguard to keep our money growing and compounding tax-free until retirement? Is it our safety net to potentially fund lives that stretch to more than 100?
The answer to these questions for us is: Yes.
“Since the SECURE Act eliminated the age from which you must take distributions, it still makes sense to fund a retirement account,” says Sarah Heegaard Rush, certified financial planner with Lincoln Financial Advisors. “And life expectancy has increased, so it’s a good idea to plan for retirement until age 95,” he says.
We are not alone in dealing with financing retirement plans.
Read: Once considered on the cusp of retirement, these people are taking a ‘gap year’ after successful careers
The reverse of the pandemic in retirement accounts
According to the new Fidelity Investments Retirement State Planning Study, more than eight in 10 Americans indicate that the events of the past year affected their retirement plans, and a third (34% of boomers) estimate that they will. take two to three years to return to normal, due to factors such as job loss or retirement retirements.
Still, a whopping 82% are confident that they will achieve their retirement goals. Men, in particular, express greater confidence: 55% say they are “very confident” compared to just 39% of women. While many are frustrated (30%) or angry (11%), nearly half (45%) are hopeful or determined to get back on track.
“People entering their 50s now realize that retirement is coming, but there is still a long way to go,” says Rita Assaf, vice president of retirement and college leadership at Fidelity. “This is where saving for retirement becomes even more important, because people are beginning to make decisions about how and when they would like to retire. To achieve those goals, and to make sure they can deal with the unexpected, such as what is needed for health care, it is even more important to make sure they have enough saved.
This is where the new findings from Fidelity really pissed me off and reminded me once again that there must be a frenzy in this country to increase financial literacy for all ages.
When asked how much someone should save for retirement, only 25% of respondents accurately indicated that financial professionals recommend having 10-12 times their last full year of earned income by the time they reach retirement. Half of those surveyed thought the figure would be only 5 times or less, according to the report.
Nearly one in three (28%) said financial professionals would recommend a 10-15% retirement rate of retirement savings each year. Most financial planners suggest a rate of 4 to 6 percent per year.
Most respondents underestimated the cost of out-of-pocket health care for a retired couple, with 37% estimating between $ 50,000-100,000. In fact, for a couple who retire at age 65, the actual average cost during their retirement is three times as high, at $ 295,0003, according to Fidelity’s number calculation.
Regarding the impact of divorce on Social Security: 63% of those surveyed think that an ex-spouse has the ability to reduce their monthly benefits, the truth is that the Social Security benefit is not reduced if an ex-spouse claims some of their benefits from Social Security. . But the claim rules are complicated.
Why Certain Women Are at Risk of Retirement
Finally, now that I have your attention on the need for retirement savings, I would be remiss not to jump on my podium to address women and future financial security.
For women ages 55 to 64, the divorce rate has tripled since 1990; for women 65 and older, it has increased six-fold. Enough talk. If widowhood is taken into account, the outlook is bleaker. Women generally end up suffering a financial blow with the loss of their spouse in any case, and this often drastically impacts their future financial security in a cruel way.
In fact, in 2018 women made up 74% of lonely households aged 80 and over. While the life expectancy gap between men and women has been narrowing, we can expect that over the next two decades, there will still be more women than men over 80 living alone.
My expert on women and money is Cindy Hounsell, president of the Washington, DC-based Women’s Institute for Secure Retirement (WISER), a nonprofit organization. He recently wrote a blog for the Social Security Administration website that is worth reading; Three Retirement Planning Tips for Women.
The main takeaway: “Your Social Security benefit payments will provide only a portion of your pre-retirement income,” Hounsell writes. “That means you will have to save more to have adequate income for your desired lifestyle in 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 still so difficult for women to save for retirement?
And two final tips:
“One way 50-year-olds can pick up the pace is by allowing contributions to catch up on IRAs, 401 (k) and HSAs (55+),” says Fidelity’s Assaf.
If you are age 50 or older, you can add an additional $ 6,500 per year in “recovery” contributions on top of any employee 401 (k) contributions you have made. (The IRS has extended the April 15 deadline for filing and paying 2020 federal individual income taxes and IRA contributions to 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 don’t have a workplace retirement plan, consider a traditional IRA, SEP-IRA, or Roth IRA, and set an amount to automate regular deposits each month to a retirement savings account. Then when your accountant calls you about your annual contribution, you have already reserved those funds. Easy peasy.
Read: It’s Not Too Late To Save On Your 2020 Tax Bill – Here’s How
Kerry Hannon is an expert and strategist on work and jobs, 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 Get Rich: The Entrepreneurs Guide to Start a Business Mid-Life, Great Jobs for Everyone 50+, and Trust in money. Follow her on twitter @kerryhannon.