It is utterly false and cruelly arbitrary to put all the play and learning into childhood, all the work into middle age, and all the regrets into old age. -- Margaret Mead
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. Instead, the things we didn’t do produce the most regrets. It turns out that we regret the most are the times we failed to act.
Regrets and Retirement Planning
Nowhere is this truer than in retirement planning. For most of us, our regrets span both saving for retirement (never enough) and failure to manage our retirement once it has started.
Rare is the individual who can say that they have it completely together in planning and managing their retirement. If you feel this failure 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. Another 10 percent have less than $5,000 saved for their golden years. A 2017 study by Government Accountability Office (GAO) analyzed retirement savings. The study found the median retirement savings for Americans between age 55 and 64 were $107,000. The reasons for our nation’s savings shortfalls are as varied as people themselves. Examples include:
- Failure to get into the retirement savings habit;
- Unexpected and uninsured loss of an income provider;
- Protracted family illnesses;
- Education expenses or debt;
- Investments that have gone awry.
Professor Gilovich would tell us that no matter what the reasons are, they don’t matter now. What is important is what happens next. 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.”
How to “Just do it” for your retirement?
What follows is a short guide to “just doing it.”
1. Start by calculating retirement assets and income. Your first step should be to look at your financial situation with the long view in mind. First, add up your existing assets. Factor in social security (click here to see the social security administration’s benefits estimator). 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. The Social Security Administration pays a smaller benefit to people who begin receiving payments at age 62. It pays more, for example, to people who wait until age 66 or age 70. If you enjoy what you are doing, are in good health, and can keep working, you may enjoy 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 economic benefit for continuing to wait. For more on this topic go to the Social Security Benefits Planner. You may also find useful an article about the tradeoffs between taking early and late distributions in this article by the Motley Fool.
2. Project Living Expenses in Retirement. You need to look at what you are going to need in retirement to cover your expenses. Be sure to include 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. Start by projecting what your expenses are.
3. Start Problem-solving. Here are some examples of places in your budget where you can find money:
a. Save on Housing Expense. A smaller home or apartment may 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 a different state, county, or even a school district can be liberating. Such a transition can mean less monthly living expense and less day-to-day maintenance. Often, the result is a net improvement in the quality of life.
b. Save on Debt. This time of life is often a great time to pay off credit card debt built up over the years. Helping your kids through their various stages in life can create credit card debt. Debt consolidation either using home equity or other forms of credit can make sense. Also, it may be a good time to explore refinancing to a 15-year mortgage. A fifteen-year mortgage may move you to a net higher payment. Paying off your mortgage in your fifties and sixties paves the way to rent-free living in your seventies and eighties. Even more enticing, after age 62 a reverse mortgage becomes an option.
c. Save on Day-to-day Expenses. Don’t be ashamed to grab senior discounts, they are everywhere. Look for them in grocery stores, movie theaters, ballparks, hotels. Finding and using these discounts can become a part of your routine. To get you started, here is a list of senior discounts.
d. Consider Small Investments that Reduce Your Living Expenses. For example, you can reduce your electricity costs. Many states provide incentives for residential investments in solar power and geothermal heating and cooling. The Federal Government also provides an investment tax credit for these kinds of investments. Start a garden. If you spend a lot of money watering on your property, a humble rain barrel can provide decades of savings on irrigation.
e. Consider Working Longer. For those who are able, keeping working post-retirement is a sensible way to fill up the savings tank. This may mean 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 companies, you may move to more entrepreneurial endeavors. Self-employment means never having to face mandatory retirement! Whatever you choose, remember that you have many, many life skills you can leverage.
f. Increase Retirement Savings as You Can. There is good news from the US government. Believe it or not, Uncle Sam has created incentives for you to save in your later years. Provisions for retirement planning procrastinators include “catch-up contributions.” The catch-up contribution provides for accelerated retirement savings after age 50. The limit for employees aged 50 and over who take part in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan (2019) is $6,000. The catch-up contribution limit for individuals aged 50 and over to the Individual Retirement Plan is $1,000. To learn more follow the link to IR-2018-211 released by the Internal Revenue Service on November 1, 2018.
g. 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. 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. Sign up 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 also enroll in Medicare medical insurance (Part B). You enroll in 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. To learn more about Medicare, follow this link to the Social Security Administration’s Medicare Page.
h. Postpone Income and Required Minimum Distributions. As of January 1 2020, retirees who reach the age of 72, have until April 1 of the next year 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 may continue to work after their 72nd birthdays may wait until the year they retire to take their first Required Minimum Distribution. For more on this topic see the IRS Topic Page on Required Minimum Distributions.
i. Use a Qualified Longevity Annuity Contract (QLAC) to Cover Income Needs in Later Retirement Years. For many, retirement funds are limited. If you are concerned about outliving your retirement assets, a QLAC is a great way of assuring yourself income later in retirement. QLAC income must begin before you reach your 85th birthday but can last for the rest of your life. Click here to watch a seminar by QLACguru Ray Ryan describing this strategy then try our Failsafe (sm) Maximize Income Calculator to see how this strategy might work for you.
j. Mark your Calendar. Retirement is not a single event, but a process to be managed. To get started, follow the link to Calculate the important future dates of your retirement. Start studying your options and setting goals. Be prepared to address each of the milestones as they arise at age 50, 55, 62, 65, 70 and 70 and one-half.
Once you’ve done this homework, it may be time to hire on 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.” Never allow a prospective advisor to ridicule the size of your portfolio. If he or she does, find another who won't.
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!
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