It’s that time of year. My accountant sent a note to my husband and me yesterday asking how much we were planning to contribute to our retirement accounts for 2020. Obviously, that makes a difference in our pending tax bill.
I sighed. Our contributions are fully deductible because none of us have a plan provided by the employer. But last year was a rocky one for self-employed people like us, and our budget was tight. My talking business stopped in March. All my reserved speeches were canceled.
Finding the money to be raised now is possible and will be done, but it gave us a break to figure out where to use the funds to be allocated.
Maybe I share too much, but at our age, this made us stop and think, should we really contribute to a retirement account? My husband is approaching the time when he will start taking the minimum distributions required by law at the age of 72 from his deferred pension accounts. (If you reach the age of 70 ½ in 2020 or later, you must take your first RMD by April 1 of the year after you turn 72.)
Read: A new law would require employees to save for retirement
Does the tax benefit guarantee contributions right now? Is it a guarantee to keep our money growing and to compose ourselves free of charge until we withdraw? Is our safety net for potential financing of lives spanning over 100 years?
The answer to these questions for us is, Yes.
“Because the SECURE Act has removed the retirement age, it still makes sense to fund a retirement account,” says Sarah Heegaard Rush, a Certified Financial Planner at Lincoln Financial Advisors. “And life expectancy has gone up, so it’s a good idea to plan for retirement by age 95,” she says.
We are not alone in the fight to fund retirement plans.
Read: Once considered on the verge of retiring, these people take a “year off” after successful careers
The return of the pandemic to retirement accounts
According to the new 2021 State of Retirement Planning study by the new Fidelity Investments, more than eight out of 10 Americans indicate that last year’s events had an impact on their retirement plans, with a third (34% of boomers) estimating that they will It may take two to three years to get back on track due to factors such as job loss or retirement.
However, 82% are confident that they will achieve their retirement goals. In particular, men express greater confidence: 55% say they are “very confident” compared to only 39% of women. While many are frustrated (30%) or upset (11%), almost half (45%) are hopeful or determined to get back on track.
“People who turn 50 now realize that retirement is approaching, but there is still a long way to go,” says Rita Assaf, Fidelity’s vice president, retirees and college leadership. “Here the savings for retirement become even more important, as people begin to make decisions about how and when they would like to retire. To achieve these goals – and to make sure they are able to take care of the unexpected, such as what is needed for healthcare – it is even more important to make sure you have saved enough. ”
Here, the new Fidelity discoveries really upset me and reminded me once again that there must be a frantic cry in this country to increase financial education for all ages.
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When asked how much someone should save for retirement, only 25% of respondents indicated exactly that financial professionals recommend that you have 10-12 times your last year of work until retirement. . Half of all respondents considered that the figure would be only 5 times or less, according to the report.
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Almost one in three (28%) said that financial professionals would recommend a withdrawal rate of 10-15% of retirement savings each year. Most financial planners suggest a rate of 4 to 6% per year.
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Most respondents underestimated the cost of out-of-pocket care for a retired couple, with 37% estimating between $ 50,000 and $ 100,000. In fact, for a couple who retire at age 65, the average effective cost throughout their retirement is three times higher, at $ 295,0003, according to the number of Fidelity believers.
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Regarding the impact of divorce on social security: 63% of respondents believe 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 security benefits social. . But the rules of claim are complicated.
Why some women are at risk of retirement
Finally, now that I have drawn your attention to the need for retirement savings, I would be careful not to step on the podium to address women and future financial security.
For women between the ages of 55 and 64, the divorce rate has tripled since 1990; for women 65 and older, it has increased sixfold. Enough said. The factor in widowhood and the image is gloomier. Women usually end up having a financial blow with the loss of a husband, in both cases and often cruelly affect their future financial security.
In fact, in 2018, women accounted for 74% of individual households over the age of 80. While the difference in life expectancy between men and women has worsened, we can expect that in the next two decades there will still be more women than men over the age of 80 living alone.
Cindy Hounsell, president of the Washington-based Women’s Safe Pension Institute (WISER), is my expert on women and money. She recently wrote a blog for the Social Security Administration website that is worth reading; Three tips for planning retirement for women.
Main payment: “Your social security payments will provide only a portion of your pre-retirement income,” writes Hounsell. “This means that you will have to save more in order to have an adequate income for the lifestyle you want to retire. Savings should be an active part of your plan to take care of you and your family’s financial future. ”
Read: Why is it still so hard for women to save for retirement?
And two final tips:
“One way 50-year-olds can accelerate is to allow ‘recovery’ contributions in IRAs, 401 (k) s and HSAs (over 55s),” says Fidelity Assaf.
If you are 50 years of age or older, you can add $ 6,500 per year in “recovery” contributions in addition to the contributions you made to 401 (k) employees. (The IRS has extended the April 15 deadline for filing and paying federal individual income taxes from 2020 and IRA contributions until May 17.)
“Taking advantage of these contributions can give a significant boost to retirement savings,” she advises.
Second, if you are self-employed, like my husband and I, and do not have a retirement plan at work, consider a traditional IRA, SEP-IRA or Roth and set an amount to automate regular deposits in each month to the savings account allocated to retirement. Then, when your accountant calls about your annual contribution, you will have already allocated these funds. Easy to hair.
Read: It’s not too late to save on the 2020 tax bill – here’s how
Kerry Hannon is an expert and strategist in employment and employment, entrepreneurship, personal finance and retirement. Kerry is the author of over a dozen books, including Great Pajama Jobs: Your Complete Guide to Working From Home, Never Too Old To Rich: The Entrepreneurs Guide To Starting a Mid-Life Business, Great Jobs for Everyone 50+ and Trust in money. Follow her on Twitter @kerryhannon.