When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration estimates that today’s average 65-year-old female will live to age 86.6. Given these projections, it appears that a retirement of 20 years or longer might be in your future.1,2
Are you prepared for a 20-year retirement? How about a 30- or 40-year retirement? Don’t laugh; it could happen. The SSA projects that about 25% of today’s 65-year-olds will live past 90, with approximately 10% living to be older than 95.2
How do you begin? How do you draw retirement income off what you’ve saved – how might you create other income streams to complement Social Security? How do you try and protect your retirement savings and other financial assets?
The median retirement age for an American woman is 62. The Federal Reserve says so in its most recent Survey of Household Economics and Decisionmaking (2017). Sixty-two, of course, is the age when seniors first become eligible for Social Security retirement benefits. This factoid seems to convey a message: a fair amount of American women are retiring and claiming Social Security as soon as they can.1
What if more women worked into their mid-sixties? Could that benefit them, financially? While health issues and caregiving demands sometimes force women to retire early, it appears many women are willing to stay on the job longer. Fifty-three percent of the women surveyed in a new Transamerica Center for Retirement Studies poll on retirement said that they planned to work past age 65.2
Staying in the workforce longer may improve a woman’s retirement prospects. If that seems paradoxical, consider the following positives that could result from working past 65.
What is the retirement outlook for the average fifty-something working woman? As a generalization, less sunny than that of a man in her age group. Most middle-class retirees get their income from three sources. An influential 2016 National Institute on Retirement Security study called them the “three-legged stool” of retirement. Social Security provides some of that income, retirement account distributions some more, and pensions complement those two sources for a fortunate few.1 For many retirees today, that “three-legged stool” may appear broken or wobbly. Pension income may be non-existent, and retirement accounts too small to provide sufficient financial support. The problem is even more pronounced for women because of a few factors.
When we go to the grocery store, we seldom shop on logic alone. We may not even buy on price. We buy one type of yogurt over another because of brand loyalty, or because one brand has more appealing packaging than another. We buy five bananas because they are on sale for 29 cents this week – the bargain is right there; why not seize the opportunity? We pick up that gourmet ice cream that everyone gets – if everyone buys it, it must be a winner.
As casual and arbitrary as these decisions may be, they are remarkably like the decisions many investors make in the financial markets.
Provided by Angel McCall CFP®
Filing Deadline – Monday, April 18, 2017
Reclaim a Social Security Overpayment – Changing jobs in 2016 and making more than $118,500 for year could mean that you overpaid Social Security tax. Employees were assessed 6.2% on pay up to $118,500, but if you changed jobs during the year, your new employer started the counter at zero regardless of how much you already earned. Document the overpayment on line 71 of your Form 1040.
Contribute to an IRA or Roth IRA before Monday 4/18/17 – However, most financial institutions require that contribution by Friday, 4/15/17. If you have not yet contributed to your IRA, it may be better to contribute to a Roth IRA instead. A tax deduction is not worth a lot if you are in a low tax bracket and the Roth will have tax-free growth.
Also, you may be eligible for a tax credit for your contribution.
Did your child have income? Contribute to a Roth IRA for them. (Watch for an extensive article on this topic in a future newsletter.)
Retirement Savings Contributions Credit (Saver’s Credit)
You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan.
Who's eligible for the credit?
You're eligible for the credit if you're:
1. Age 18 or older;
2. Not a full-time student; and
3. Not claimed as a dependent on another person’s return.
See the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions, for the definition of a full-time student.
Amount of the credit
The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A). Use the chart below to calculate your credit.
*Single, married filing separately, or qualifying widow(er)
Retirement savings eligible for the credit
The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.