It’s that time of the year. My accountant sent my husband and me a note yesterday asking how much we intend to contribute to our retirement accounts for 2020. That, of course, makes a difference to our current tax bill.
I sighed. Our contributions are fully deductible because neither of us have an employer-provided plan. But last year was a difficult year for self-employed people like us, and our budget was tight. My speaking engagements came to a halt in March. All my booked speeches have been canceled.
Finding the money we can use now can and will be done, but it did give us pause to figure out where to tap the money to put aside.
Maybe I’m sharing too much, but as our ages it made us think: do we really still need to contribute to a retirement account? My husband is nearing the time when he will start taking the required minimum benefits at 72 by law from his tax deferred retirement accounts. (If you turn 70 ½ years old in 2020 or later, you must take your first RMD before April 1 of the year after turning 72.)
Read: A new law requires employees to save for retirement
Does the tax benefit currently qualify for contributions? Is it the safeguard of growing our money tax-free and compounding it until it is withdrawn? Is it our safety net to potentially fund lives that stretch to 100+?
The answer to these questions is for us: Yes
“Since the SECURE Act has shifted the age from which you should receive benefits, it still makes sense to fund a retirement account,” said Sarah Heegaard Rush, a Certified Financial Planner at Lincoln Financial Advisors. “And life expectancy has gone up, so it’s a good idea to retire until the age of 95,” she says.
We’re not the only ones struggling to fund retirement plans.
Read: Once They Considered Retirement, These People Are Taking a ‘Gap Year’ After a Successful Career
The setback of the pandemic in retirement accounts
According to Fidelity Investments’ new 2021 State of Retirement Planning Study, more than eight in ten Americans say the events of the past year have affected their retirement plans, with a third (34% of boomers) estimating it will . taking two to three years to get back on track, due to factors such as job loss or retirement.
Nevertheless, a whopping 82% are confident that they will achieve their retirement goals. Men in particular provide more security: 55% say they have ‘a lot of self-confidence’, compared to only 39% of the women. While many are frustrated (30%) or angry (11%), nearly half (45%) are hopeful or determined to get back on track.
“People in their 50s now realize that retirement is approaching, but there is still much to do,” said Rita Assaf, Fidelity vice president of Retirement and College Leadership. “Here, saving for retirement becomes even more important as people are starting to make decisions about how and when to retire. In order to achieve those goals – and ensure that they can deliver the unexpected, such as what is needed for health care – it’s even more important to make sure you have enough savings. “
Here’s where the new Fidelity findings really upset me, reminding me once again that there must be a frantic cry in this country for increasing 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 your last full year of employment income by the time you retire. Half of all respondents thought the figure would be only five times or less, according to the report.
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Nearly one in three (28%) said financial professionals would recommend a withdrawal rate of 10 to 15% of their retirement savings per year. Most financial planners propose a rate of 4 to 6 percent per year.
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Most respondents underestimated the cost of homemade health care for a retired couple, with 37% estimating between $ 50,000 and 100,000. In fact, for a couple retiring at age 65, the true average cost during their retirement is three times that, at $ 295,0003, according to Fidelity figures.
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Regarding the impact of divorce on Social Security, 63% of respondents think an ex-spouse has the option to reduce their monthly benefits, the truth is that someone’s Social Security benefit is not reduced if an ex-spouse has a share of their claims social security benefits. . But the claim rules are complicated.
Why Certain Women Retire?
Finally, now that I have your attention to the need for retirement savings, I would be remiss not to jump on my stage to address 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 has increased sixfold. Enough said. Factor in widowhood and the picture is more sombre. Women usually end up taking a financial blow with the loss of a spouse in either case, and it often has a cruel impact on their future financial security.
In 2018, women made up 74% of individual households aged 80 and over. While the gap in lifespan between men and women is narrowing, we can expect that in the next two decades there will still be more women than men over 80 living alone.
My go-to expert on women and money issues is Cindy Hounsell, president of the nonprofit Women’s Institute for a Secure Retirement (WISER) in Washington, DC. She recently wrote a blog for the Social Security Administration website that’s worth reading; Three retirement planning tips for women.
The main takeaway: “Your Social Security benefits will only provide a portion of pre-retirement income,” Hounsell writes. “That means that you have to save more in order to have sufficient income for your desired lifestyle after 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 pieces of advice:
“One way people in their 50s can pick up the pace is by taking into account” catch-up “contributions in IRAs, 401 (k) s, and HSAs (over 55),” said Fidelity’s Assaf.
If you are 50 or older, you can add an additional $ 6,500 per year in “catch-up” contributions on top of the 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 significantly increase your retirement savings,” she advises.
Second, if you’re an independent worker like my husband and I, and don’t have a workplace retirement plan, consider a traditional, SEP-IRA or Roth IRA, and set an amount to automate regular deposits to a savings account each month intended for retirement. When your accountant calls about your annual contribution, you have already put that money aside. Easy.
Read: It’s not too late to save on your 2020 tax bill – here’s how
Kerry Hannon is an expert 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 Business Mid-Life, Great Jobs for Everyone 50+, and Trust money. Follow her on Twitter @kerryhannon