By Lindsay Goldwert
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You’ve been contributing to your 401(k). You’ve maxed out your contributions to your Roth IRA. Is there anything else you can do to successfully invest, save, and plan for your retirement?
The answer is yes, says Rhian Horgan, the former head of alternative investment strategies at JP Morgan Asset Management, and current CEO of Silvur , an app that helps people over 50 navigate retirement. Here’s what Horgan says you should consider thinking about beyond your 401(k) when planning for retirement.
Start making big choices in your 50s
It can be scary to run the numbers and see that your retirement savings and investments will last you until you’re, say, 80. What if you end up living longer, as many do? Indeed, once you hit 65, women live, on average, another 20.8 years and men another 18.2 years, according to the CDC. One simple tip Horgan offers for those around age 50 to extend their nest egg: Reduce your spending by $250 a month, invest that extra money, and then let it compound over 30 years — that can add four or five years to your nest egg, says Horgan.
Think too about how to stretch your retirement dollars further (and how you’ll need to supplement it with other investments, Social Security and other options). For example, knowing — or at least hoping — that you’ll want to work part-time in retirement can change your financial situation rather than quitting around 65.
Ultimately, said Horgan, the biggest roadblock to investing is fear and lack of confidence. “This generation is more afraid of running out of money than they are of dying,” she said. “People need to start thinking about social security and healthcare costs in addition to what they’ve saved in their 401ks or IRAs.”
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Consider an HSA
Horgan said that one of the biggest regrets she hears from retirees is that they hadn’t correctly factored healthcare costs into their planning. “The average Medicare plan with a supplemental plan included can run people $500 to $600 a month per person,” she said. “I just think it’s a travesty that we sell the idea of a “zero premium” Medicare plan. “‘Zero premium’ isn’t zero cost.”
Even with a good plan, healthcare costs can be staggeringly high. Indeed, Fidelity estimates that an average retired couple age 65 in 2021 may need roughly $300,000 saved (after tax) to cover health care expenses in retirement. “You’re likely to have out-of-pocket expenses that you’re going to need to cover,” she says. Investing in a healthcare savings account (HSA) is a great, tax-efficient way to start saving for the medical expenses that are likely to pop up as we age. “I think about an HSA as having all of the benefits of a 401(k) plus some,” says Horgan.
Here’s how they work: As an individual, in 2023, you can put $3,850 a year into an HSA, or as a family, you can put $7,750 a year into an HSA. Earnings are tax free, and as the account grows, you get tax-free withdrawals for medical expenses, such as co-pays, out of pocket costs, and medications. Once you hit age 65, you can use the money in your HSA for non-medical expenses without a penalty (though you will pay taxes on it).
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Wrap your head around Social Security
Hogan says that understanding Social Security is one of the biggest hurdles for customers looking to get a handle on their retirement finances. Her own efforts to navigate it on behalf of her parents enforced her idea that people needed a simpler way to understand it. “I went to Barnes & Noble and I bought this 400 page book,” she said. “It was so complicated. And I thought to myself, ‘how can the average American successfully navigate their Social Security election?’”
The more you understand about Social Security in your thirties, forties and fifties, the more that you’ll actually understand how short- and long-term decisions (such as leaving the workforce to take care of an aging parent) can impact your short-term finances. And there are other decisions that people often don’t consider. For example, Horgan says that a lot of individuals don’t understand how Social Security works in the case of a divorce settlement and how it can impact retirement income. “If you were not the primary earner, the primary earner receives a hundred percent benefit. And you as the non-primary earner only receive a 50% benefit,” she said. “So think about trying to split assets equally, Social Security is not actually split equally.”
This story was originally published in January 2022.
