No one knows exactly how long they’ll live, but these days there’s a definite upward trend when it comes to lifespans for both men and women. With more people hitting high age benchmarks of 90 or even 100 comes the need to adjust your approach to retirement planning.
Instead of a 20-year retirement, people must now plan for 25 or even 35 years. And while many folks assume their expenses will go down upon retirement, that is not necessarily the case. As retirement years stretch into the 80s and 90s, expenses often go up due to increased healthcare costs and the need for nursing home care.
This raises a key question: How do you plan for a longer life and comfortable retirement, especially in the midst of inflation? Here are some proven tips to put into action, whether you’ve already entered your golden years or are still laying the groundwork for approaching retirement.
Work Longer and Retire Later
Many people can’t wait to retire early but doing so can harm them financially if they live to a ripe old age. The longer you work at either your current job or in a so-called “encore” career, the longer you can postpone taking money out of your retirement accounts or collecting Social Security.
Early retirement is all well and good, but not if it means you’ll need to worry about money for the rest of your life.
By not taking Social Security until age 70, you can increase your payout by 8 percent annually from the date at which you were eligible for full benefits. You could receive up to 129.3 percent of your monthly benefit if waiting until 70. There is no point in delaying benefits beyond that, as the amount no longer increases.
Besides finances, there’s another reason some older people want to remain in the workforce. Ask virtually any older person about their greatest fears, and developing Alzheimer's or another form of dementia is high on the list. Working longer keeps you productive and may improve your mental health. Staying engaged and active helps keep the mind elastic, while also providing supplementary retirement income.
Save More Money
It’s crucial to fully fund your 401(k) or other retirement plans. However, there are limits to how much you can save in an employer-sponsored retirement plan or IRA. That’s why one goal when planning for a longer life is saving significant amounts beyond your retirement accounts.
Your financial advisor can advise you on appropriate investments based on your circumstances, always keeping tax consequences in mind.
401(k) Distributions
A long retirement might affect how you choose to take 401(k) distributions, or what you might do with the money you withdraw. The IRS recently increased the maximum age for taking Required Minimum Distributions (RMDs) from a 401(k) and traditional IRAs to 72, up from 70.5. While you can start taking distributions without penalty at 59.5, the odds that your savings will allow you to live comfortably for another 40 years are probably not great.
Postpone retirement until age 72, and it’s more likely you won’t have to worry about money in your 90s.
What if you must take RMDs but don’t need the money at this time? There are ways to continue saving until you do need the funds. For instance, your financial advisor can immediately transition that money into your brokerage account, so that it continues to work for you while you make sure to follow all government regulations.
Everyone’s situation is unique. That’s why a solid financial education accompanied by professional advice will help you determine the best options for your needs.
For more information about retirement and planning for a longer life, contact a financial advisor at EP Wealth Advisors today.
Disclosures:
EP Wealth Advisors, LLC (“EP Wealth”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented in this report. EP Wealth has used its best efforts to verify the data included in this report. The information presented was obtained from sources deemed to be reliable. However, EP Wealth cannot guarantee the accuracy or completeness of the information offered. All expressions of opinion are subject to change without notice.
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The content of this report is believed to be accurate as of the date of publication and cannot and does not accurately forecast future economic, market, or financial conditions; including changes to retirement benefits, social security, and/ or Medicare. For this reason, any subsequent changes, and/or that occur after the publication of this presentation may cause the analysis encompassed herein to become inaccurate. Any references to future market or economic forecasts are based on hypothetical assumptions that may never come to pass.
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The information presented here is not intended to be regarded as a comprehensive list of considerations, including but not limited to, categories, services, or qualifications that a client or prospective client should consider when assessing or comparing Financial Advisors and/or Firms. As the author of this piece, EP Wealth Advisors, LLC (“EPWA”) has tailored the messaging of this article to align with the categories, services, qualifications, capabilities and services that it offers. There is no guarantee or warrantee that the services offered by EPWA will satisfy your financial services requirements. Services offered by other advisors may be more suitable to your specific needs.
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There is no guarantee nor is the intention of this publication to establish any sense of assurance, that, if followed, the strategies referenced here will produce a positive or desired outcome. In fact, there is no guarantee that any of the steps detailed will enable the ability to generate successful or appropriate strategy or approach. The intent of this article is strictly for educational purposes.
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The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. The referenced material identified herein is limited in nature and specific to what is offered by EPWA. There is no guarantee or warrantee that the services offered by EPWA will satisfy your financial services requirements. Services offered by other advisors may be more suitable to your specific needs.