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.)
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.
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.