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Outside the Box: At what age should you stop saving for retirement?

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It’s that time of year. My accountant sent my husband and me a note yesterday asking how much we planned 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 since neither of us has an employer-provided plan. But last year was a rocky one for self-employed workers like us, and our budget has been tight. My speaking business came to a screeching halt in March. All my booked speeches canceled.

Finding the cash to sock away right now can and will be done, but it did give us pause to figure where to tap the funds to set aside.

Maybe I’m sharing too much, but at our ages, it did make us pause and think, should we really still be contributing to a retirement account? My husband is nearing the time he will start to take required minimum distributions by law at 72 from his tax-deferred retirement accounts. (If you reach age 70 ½ in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.)

Read: A new law would require employees to save for retirement

Does the tax benefit warrant contributions right now? Is it the safeguard to keep our money growing and compounding tax-free until withdrawal? Is it our safety net for potentially funding lives that stretch to 100+?

The answer to these questions for us is, yes.

“Since the SECURE Act pushed out the age from which you have to take distributions, it still makes sense to fund a retirement account,” says Sarah Heegaard Rush, a Certified Financial Planner with Lincoln Financial Advisors. “And life expectancies have increased, so it’s a good idea to plan for retirement to age 95,” she says.

We’re not alone in grappling with funding retirement plans.

Read: Once considered on the cusp of retirement, these people are taking a ‘gap year’ after successful careers

The Pandemic’s Setback to Retirement Accounts

According to the new Fidelity Investments’ “2021 State of Retirement Planning Study,” more than eight-in-10 Americans indicate the events of the past year have impacted their retirement plans, with one-third (34% of boomers) estimating it will take two to three years to get back on track, due to factors such as job loss or retirement withdrawals.

Nonetheless, a whopping 82% are confident that they will achieve their retirement goals. Men in particular express greater assurance: 55% say they are ‘very confident’ compared with only 39% of women. While many are frustrated (30%) or angry (11%), nearly half (45%) are hopeful or determined they will get back on track.

“People entering their 50s now realize that retirement is getting closer, but there’s still a lot of living ahead,” says Rita Assaf, Fidelity vice president, Retirement and College 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 those goals—and ensure they’re able to take care of the unexpected, such as what is needed for healthcare—it’s even more important to ensure you have enough saved.”

Now here’s where the new Fidelity findings 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.

  • 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 working income by the time you reach retirement. Half of all respondents thought the figure would be only 5 times or less, according to the report.
  • Nearly one in three (28%) said that financial professionals would recommend a withdrawal rate of 10 to 15% of retirement savings every year. Most financial planners suggest a rate of 4 to 6 percent annually.
  • Most respondents underestimated the cost of out-of-pocket healthcare for a couple in retirement, with 37% guessing between $50,000-100,000. In fact, for a couple retiring at 65, the actual average cost throughout their retirement is three times higher, at $295,0003, according to Fidelity’s number-crunching.
  • As for the impact of divorce on Social Security: 63% of respondents think a former spouse has the ability to reduce their monthly benefits, the truth is, one’s Social Security benefit is not reduced if an ex-spouse claims some of their Social Security benefits. But the claiming rules are complicated.

Why certain women are at retirement risk

Finally, now that I have your attention on the need for retirement savings, I would be remiss not to jump on my podium to address women and future financial security.

For women aged 55 to 64, the divorce rate has tripled since 1990; for women 65 and older, it has increased sixfold. Enough said. Factor in widowhood and the picture is bleaker. Women typically wind up taking a financial hit with the loss of a spouse in either case, and it often sharply impacts their future financial security in a cruel way.

In fact, in 2018 women comprised 74% of solo households age 80 and over. While the gap in lifespan between men and women has been tightening, we can expect that over 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 Washington, D.C.-based Women’s Institute for a Secure Retirement (WISER) nonprofit. She recently wrote a blog for the Social Security Administration’s website that is worth a read; Three Retirement Planning Tips for Women.

The main takeaway: “Your Social Security benefit payments will provide only a portion of preretirement income,” Hounsell writes. “That means you’ll have to save more to have adequate income for your desired lifestyle in retirement. Savings need to be an active part of your plan to take care of yourself and your family’s financial future.”

Read: Why is it still so hard 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 allowing for “catch-up” contributions in IRAs, 401(k)s and HSAs (over age 55),” says Fidelity’s Assaf.

If you’re age 50 and older, you can add an extra $6,500 a year in “catch-up” contributions on top of any employee 401(k) contributions you 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 deliver a significant boost to your retirement savings,” she advises.

Second, if you’re an independent worker like my husband and I are, and don’t have a workplace retirement plan, consider a Traditional, SEP-IRA, or Roth IRA, and set an amount to automate regular deposits each month to a savings account earmarked for retirement. Then when your accountant calls about your annual contribution, you will have already set those funds aside. Easy-peasy.

Read: It’s not too late to save on your 2020 tax bill — here’s how

Kerry Hannon is an expert and strategist on 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 HomeNever Too Old To Get Rich: The Entrepreneurs Guide To Starting a Business Mid-LifeGreat Jobs for Everyone 50+, and Money Confidence. Follow her on Twitter @kerryhannon

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