Are you in your fifties or sixties?
If you’re like most people our age, you may have a regret or two.
Research by Cornell Psychology Professor, Thomas Gilovich, shows what we regret most in life is not the mistakes we’ve made in the past, but, instead, the things we didn’t do. It turns out that we regret the most the times we failed to act.
Regrets and Retirement Planning
Nowhere is this more true than in retirement planning. For most of us, our regrets span both saving for retirement (which, no matter how hard we try is never enough) and not managing our retirement once it has started.
Rare is the individual who can confidently say that they have it completely together in planning and managing their retirement. If you feel this applies to you, it turns out you are in good company. A 2018 Northwestern Mutual study found that 21 percent of Americans of all ages have nothing at all saved for the future, and another 10 percent have less than $5,000 saved for their golden years. A 2017 study for Congress by the US Government Accountability Office (GAO) found that the median retirement savings for Americans between ages 55 and 64 were $107,000. The reasons for our nation’s savings shortfalls are as varied as its people themselves. Reasons can range from a simply not getting in the retirement savings habit, to divorce, to family illnesses, to the costs of education, to a few investments gone wrong.
Do any of these reasons sound familiar to YOU?
Professor Gilovich would tell us that no matter what the reasons are, they don’t matter now. What happens next is what’s important for all of us who have not saved adequately for retirement. Professor Gilovich advises that we tackle our potential future regrets head-on: “As the Nike slogan says: ‘Just do it…Don’t wait around for inspiration, just plunge in. Waiting around for inspiration is an excuse. Inspiration arises from engaging in the activity.”
So how can we “Just do it” for our retirements?
What follows is a short guide to “just doing I, based on input for leading financial planners and gerontologists.. No matter how late in the game you may think it is, here are concrete actions you can take so that you retire better.
- Start by calculating retirement assets and income. Your first step should be to look at your financial situation with the long view in mind. Add up your existing assets, then factor in social security (you can go to the social security administration website and find the social security administration’s benefits estimator) as a first step. The benefits estimator tool may provide you with some important insights into how long you will want to keep working. For example, while you may start to receive Social Security at age 62, you should study your options carefully. The Social Security Administration pays a smaller benefit to people who begin receiving payments at age 62 than it does, for example, to people who wait until age 66. If you enjoy what you are doing, are in good health, and can keep working, you may benefit greatly from receiving benefits later. Indeed, Social Security benefits increase every month you do not take them until you reach age 70. After a retiree’s 70th birthday, there is no additional economic benefit for continuing to wait to take social security benefits.
- Next, Project Living Expenses in Retirement. With an understanding of the revenue side of the equation, you need to look at what you are going to need in retirement to cover your rent, food, medical expenses and other costs of day-to-day living. If there is a shortfall – and there is for many of us – don’t panic. No matter how small your savings is now, the most important thing you can do at this stage is to begin by projecting what your expenses are.
- Now its time to Start problem-solving. Here are some examples of places in your budget where you can find money:
- Save on housing expense. Maybe a smaller home or apartment would make sense now. Many of us with grown children live in houses that are far too large for our needs. Moving to a smaller home in different state, county, or even a different school district (now that you don’t have kids in school) can be liberating. For many, such a transition can mean less monthly living expense, less day-to-day maintenance, and often, a net improvement in the quality of life.
- Save on debt. For some, this time of life is a great time to pay off credit card debt built up over years of helping your kids through their various stages in life. Often debt consolidation either using home equity or other forms of credit can make sense. In addition, it may be a good time to explore refinancing to a 15-year mortgage. While moving to a net higher payment, paying off your mortgage in your fifties and sixties can mean living rent-free in your seventies and eighties. Even more enticing, after age 62 a reverse mortgage becomes an option.
- Save on day-to-day expenses. Don’t be ashamed to grab senior discounts, they are everywhere: grocery stores, movie theaters, ballparks, hotels are just a few examples. Shamelessly finding and using these discounts can become a part of your routine.
- Consider Working Longer. For those who are able, keeping working post-retirement is a sensible way to fill up the savings tank. This may require a transition to a second career which may be different from what you pursue in the present. For example, after working many years in larger or prestigious companies, you may find yourself moving to more entrepreneurial endeavors or self-employment. Whatever you chose, remember that you have many, many life skills you can leverage.
- Increase retirement savings as you can. There’s good news from the US government. Believe it or not, the Federal Government has created incentives for you to save in your later years. Provisions for procrastinators include something called “catch-up contributions.” The catch-up contribution is designed to provide for accelerated retirement savings after age 50. The limit for employees who participate in 401(k), 403(b), and most 457 plans for 2019 is normally $19,000. After their 50th birthdays, employees can contribute an additional $6,000 per year for a total of $25,000 to these plans. The 2019 contribution to the Individual Retirement Plan or IRA is normally $6,000. But after age 50 the IRS will allow you to chunk in an additional $1,000 for a total IRA contribution of $7000.
- Reduce your Medical Expenses with Medicare. If you are within three months of your 65th birthday, you can sign up for Medicare. Medicare is the national health insurance program for people age 65 or older. Part A helps pay for inpatient care in a hospital or skilled nursing facility while Part B helps pay for doctors’ services and many other medical services. Most people age 65 or older are eligible for free Medicare hospital insurance (Part A) if they have worked and paid Medicare taxes long enough. You should sign up for Medicare hospital insurance (Part A) 3 months before your 65th birthday, even if you do not want to begin receiving retirement benefits at that time. Anyone who is eligible for free Medicare hospital insurance (Part A) can enroll in Medicare medical insurance (Part B) by paying a monthly premium. Some beneficiaries with higher incomes will pay a higher monthly Part B premium. If you do not choose to enroll in Medicare Part B and then decide to do so later, your coverage may be delayed and you may have to pay a higher monthly premium.
- Postpone Income and Required Minimum Distributions. Retirees who reach the age of 70 and one-half, have until April 1 to take their first Required Minimum Distribution (RMD) from their qualified retirement plan(s). They have until the next December 31 to take their second distribution. Those individuals whose employer retirement plans allow it and who keep working after their 70th birthdays may wait until the year they retire in order to take their first Required Minimum Distribution.
- Use a Qualified Longevity Annuity Contract (QLAC) to cover income needs in later retirement years. If retirement funds are limited and you are concerned about outliving your retirement assets, a QLAC is a great way of assuring yourself income starting before you reach your 85th birthday and lasting while you are alive. Check out QLACguru's Maximize Income Calculator to see how this might work for you.
Once you’ve done this homework, if you haven’t done so already, it may be time to hire a financial advisor to help you grow your assets. But pick her or him carefully. Like Charles Barkley, you need to, “take the shame out of your game.” Do not allow a prospective advisor to ridicule the size of your portfolio.
After all, it’s not about what you have now, but what you can have in the future.
Welcome to the next 30 years of your life!
Notice: The foregoing video and examples do not portray any one person’s situation. The dramatizations were prepared by the Company to introduce viewers to a new financial product, a Qualified Longevity Annuity Contract. Individual circumstances of a viewer are likely to vary from the examples in the videos. The videos are not tax or legal advice. The financial information, and calculations depicted in these videos are supplied from sources we believe to be reliable. However, we are unable to guarantee their accuracy. These materials are not intended to replace the viewer’s legal, tax and accounting advisors. Any viewer should seek advice from his or her qualified advisors prior to entering into a QLAC purchase. The Company accepts no responsibility for any outcome arising from a QLAC purchase or a failure to make a QLAC purchase. This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state, or local tax penalties.