Don’t let life, financial milestones sneak up on you
For the first time since my childhood, “half” is about to become important again.
“Half” is something children care about and adults generally ignore. It’s the six month age that kids include when they tell you they’re, say, “six and a half,” which adults effectively reject by the time they reach adulthood.
This weekend, however, I’m 59, and spending decades as a personal finance reporter has etched some numbers in my brain. In the sequence of important ages around retirement, 50 is the first key number, as it is the age at which savers are allowed to make “catch-up contributions” to individual retirement accounts and pension plans. .
The next number in the sequence is 59½, the age at which withdrawals from a 401 (k) or IRA are no longer subject to a 10% early withdrawal fee.
While I would expect it to be years before I even consider accessing my retirement funds, it’s a little shocking that I’ve spent my career saying “There are penalties.” for early withdrawal until you are near sixty “and now reach that age myself.
Time is catching up with us all, but what we need to do as retirement savers is to make sure it doesn’t surprise us.
Too many people end up making default choices or less than ideal elections when it comes to these key retirement numbers. They turned 62 and started receiving Social Security – although it would be statistically better to wait to receive benefits – because they weren’t prepared to wait. Or they push toward “full retirement age” – which can be 66 or 67, depending on your date of birth – and let that age rather than portfolio totals determine whether Social Security’s postponement to 70 is possible.
People who “cannot wait” to collect social security are likely to receive less in their lifetime than those who can defer it for a while; people who need to dip into their retirement savings before the minimum required distributions take effect (at age 72) are more likely to outlive their money.
While I don’t feel my age (or generally act like it, for that matter), I’ve always been aware that the passage of time will create financial decisions and potential anxieties.
I’ve spent my entire adult life worrying about the arrival of a guy I call “Chuck, 65”, and now that I can hear him hum in the distance, I’m lucky. not to sweat his arrival.
In my twenties, when I could barely afford to save anything for retirement, I still contributed because one day I would come face to face with my 65-year-old self, and the first thing he was asking me was what I had done with his money.
Whenever I was tempted to save less or spend more, the eventual arrival of Chuck, 65, motivated me to keep finding ways to save.
Hitting a large number in the retreat streak makes his arrival more real and means that now is the critical moment.
The problem for retirement savers is that once you run out of time, there’s not much you can do if you haven’t spent decades saving and preparing.
The catch-up provisions save you only a little more, and for a small number of years. They help, but not enough to really “catch up” if you haven’t done it right from the start.
Most people just have loose cues on how they plan for retirement.
Collectively, however, it is clear that people are not saving enough to meet the appropriate savings goals.
A survey by the Transamerica Center for Retirement Studies showed that the median retirement savings for Americans in their 50s was $ 117,000, with the median for those in their 60s being $ 172,000.
Consider that experts want savers in their sixties to have a nest egg eight to ten times their salary; Based on the median savings and removing the calculations, this nest egg is appropriate for a 60-year-old saver who earns somewhere between $ 17,000 and $ 21,500 per year.
The problem is, the actual median income of those nearing retirement age is instead $ 55,000, which means Americans are woefully under-saved – about two-thirds below recommended levels – and will struggle. to create financial peace in retirement.
Fidelity Investments has done extensive research on the “savings factor” to show the multiple of the salary investors are expected to be making at a certain age.
For example, at age 45, an investor is considered to be able to have adequate retirement savings if he has four times his salary. At 60, that’s 6 times the salary, rising to 10 times the salary set aside for retirement at 67.
Personally, I was ahead of that pace at 45, but suffered a setback with a surprise divorce a few years later. Now, with a year to go to 60, I’m ahead of schedule again (thanks, scholarship).
Of course, your age is just a number, unless it shows how much you squandered the financial savings opportunities of your youth.
As retirement approaches, each “half” counts. Check your progress while there is still something you can do to improve your position if necessary.
Knowing where you stand is crucial; it allows you to plan, create an asset allocation, and set a savings / spending path that will get the most out of savings while allowing for appropriate spending – and, if you’re lucky, generous – to all ages for the rest of your life.
You don’t need to watch your savings pile up every day – obsessive focus tends to make people do stupid things that bypass their planning – but you do need to check it out and make a plan of action.
The closer you get to retirement age, the more detailed the plan must be and the more imperative it is to implement it.
The longer you delay in taking stock, the more age approaches you and you reach those key ages and those unconscious, unprepared, impulsive acting lifelong benchmarks.