It’s that time of year. My accountant sent my husband and me a note yesterday asking how much we plan to contribute to our retirement accounts in 2020. Obviously, this makes a difference in our outstanding tax bill.
I sighed. Our contributions are fully deductible, as none of us has a plan provided by the employer. But the past year has been difficult for self-employed workers like us, and our budget has been tight. My lecture business was interrupted in March. All of my reserved speeches have been canceled.
Finding the money to stock up now can and will be done, but it gave us a break to find out where to use the funds to reserve.
Maybe I’m sharing a lot, but at our age, it made us stop and think, should we really still be contributing to a retirement account? My husband is approaching the time when he will begin receiving the minimum distributions required by law at the age of 72 from his deferred tax retirement accounts. (If you reach the age of 70 and a half in 2020 or later, you must make your first RMD by April 1 of the year after reaching 72.)
Read: A new law would require employees to save for retirement
Does the tax benefit guarantee contributions now? Is it the safeguard to keep our money growing and accumulating tax exemptions until withdrawal? Is it our safety net to potentially finance lives that reach more than 100?
The answer to these questions for us is, Yes.
“Since the SECURE Act pushed the age to make distributions, it still makes sense to fund a retirement account,” says Sarah Heegaard Rush, a certified financial planner with Lincoln Financial Advisors. “And life expectancy has increased, so it’s a good idea to plan for retirement at 95,” she says.
We are not alone in the fight against financing retirement plans.
Read: Once considered on the brink of retirement, these people are taking a ‘gap year’ after successful careers
The pandemic setback for retirement accounts
According to the new “2021 State of Retirement Planning Study” by Fidelity Investments, more than eight out of ten Americans indicate that last year’s events impacted their retirement plans, with one third (34% of boomers) estimating that it will be taken two to three years to return to normal, due to factors such as job loss or retirement.
However, an impressive 82% are confident that they will reach their retirement goals. Men, in particular, express greater security: 55% say they are “very confident” 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 who are approaching 50 now realize that retirement is approaching, but there is still a lot to live for,” says Rita Assaf, vice president of Fidelity, Retirement and University Leadership. “This is where saving for retirement becomes even more important, because people are starting to make decisions about how and when they would like to retire. To achieve these goals – and to ensure that they are able to take care of the unexpected, such as what is necessary for health – it is even more important to ensure that you have saved enough. “
Now, this is where Fidelity’s new discoveries really disturbed me and reminded me once again that there must be a frantic outcry in this country to increase financial education for all ages.
-
When asked how much someone should save for retirement, only 25% of respondents accurately indicated that financial professionals recommend having 10 to 12 times your last full year of work income when you reach retirement. Half of all respondents thought the number would be only 5 times or less, according to the report.
-
Almost one in three (28%) said that financial professionals would recommend a withdrawal rate of 10 to 15% of savings for retirement 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 couple in retirement, with 37% calculating between $ 50,000 and $ 100,000. In fact, for a couple retiring at age 65, the real average cost over their retirement is three times that, at $ 295,0003, according to Fidelity’s calculations.
-
Regarding the impact of divorce on Social Security: 63% of respondents think that a former spouse has the ability to reduce his monthly benefits, the truth is that the Social Security benefit is not reduced if a former spouse requests part of his benefits of Social Security. But the complaint rules are complicated.
Why certain women are at risk of retirement
Finally, now that I have your attention on the need for savings for retirement, it would be remiss if I didn’t go up to the podium to talk about women and future financial security.
For women aged 55 to 64, the divorce rate has tripled since 1990; for women aged 65 and over, it increased sixfold. Enough said. Consider widowhood and the picture is darker. In both cases, women end up suffering a financial loss due to the loss of their spouse, which usually drastically affects their future financial security.
In fact, in 2018 women represented 74% of single families aged 80 and over. Although the gap in life expectancy between men and women has narrowed, we can expect that in 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 nonprofit organization WISER (Women’s Institute for Secure Retirement). She recently wrote a blog for the Social Security Administration website that is worth reading; Three retirement planning tips for women.
The main lesson: “Your Social Security benefit payments will provide only a portion of your pre-retirement income,” writes Hounsell. “This means that you will have to save more to have an adequate income for the desired lifestyle in retirement. Savings need to be an active part of your plan to take care of you and your family’s financial future. “
Read: Why is it still so difficult for women to save for retirement?
And two final pieces of advice:
“One way for people in their 50s to pick up the pace is to allow catch-up contributions in IRAs, 401 (k) s and HSAs (over 55 years old),” says Assaf of Fidelity.
If you are 50 or older, you can add an additional $ 6,500 per year in “recovery” contributions in addition to any employee 401 (k) contributions you have made. (The IRS extended the April 15 deadline for filing and paying individual federal income taxes and IRA contributions to May 17.)
“Taking advantage of these contributions can give your retirement savings a significant boost,” she advises.
Second, if you are a self-employed worker like my husband and I are, and don’t have a retirement plan in the workplace, consider a traditional, SEP-IRA or Roth IRA and set a value to automate regular deposits each month to a savings account for retirement. So by the time your accountant calls to talk about your annual contribution, you’ve already set aside those funds. Easypeasy.
Read: it’s not too late to save on your 2020 tax bill – see how
Kerry Hannon is a specialist and strategist in 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 Mid-Life, Great Jobs for All Over 50, and Confiança in cash. Follow her on twitter @kerryhannon.