3 insights, 2 findings, 1 action (January 16, 2020)
I hope your January is off to a great start. Here are three insights, two findings, and one action to take this week.
3 INSIGHTS FROM ME
I. The SECURE Act and your retirement
It’s not often legislation is enacted that impacts retirement for so many. The SECURE Act is poised to do just that. The prominent changes of this new act are 1) increased age for required minimum distributions (RMD), 2) more opportunities for part-time workers to participate in an employer-sponsored 401(k) plan, 3) adjusted age caps on traditional IRA contributions, 4) stretched limitations on inherited IRAs for certain beneficiaries, and 5) increased access to tax-advantaged retirement savings accounts.
II. Choosing the optimal retirement age
Retirement age can be traditional—what people do in a society or an organization. Or it can be a financial decision reflecting when someone has adequate resources to retire. Choosing a retirement age is a personal decision, and it’s complicated due to competing factors, lack of clarity about what lies ahead (no comparable life experiences to mimic), and confusing financial and non-financial factors that may exceed an individual’s cognitive limits. Determining your retirement age requires systematic decision-making that considers retirement's financial feasibility, the ability to continue working, and personal and psychological factors. After careful analysis, the retirement age choice comes down to one of four potential outcomes: 1) retirement by necessity, 2) work by necessity, 3) retirement by choice, and 4) work by choice.
III. Planning for incapacity: Choosing the appropriate strategy for delegating medical decisions
The longer we live, the greater our risk of incapacity. While the risk cannot be avoided, there are ways to lessen its impact. It’s important to plan for the delegation of medical decisions. Retirees may lose the capacity to make their own healthcare decisions. The lack of a plan can add a more stressful personal impact to what is likely a difficult situation for retirees and loved ones. Failing to plan when incapacitated generally leads to only one solution: having a court appoint a guardian, which is a slow, painful, and uncertain process that may cause unnecessary trauma to the family. Putting together a plan involves having appropriate strategies in place. Key strategies are determining objectives, creating documents for health care choices, and informing family members and trusted individuals of these documents.
2 FINDINGS FROM OTHERS
I. Social Security’s role in providing retirement security
It is no surprise that Social Security is the major source of retirement income for most retirees. Here are a few key statistics to back this up.
- For 1 in 5 retirees, Social Security is their only source of income.
- For 1 in 3 retirees, Social Security is 90 percent of their retirement income.
- For 2 in 3 retirees, Social Security is more than 50 percent of their retirement income.
- These ratios are not expected to change over time.
- As people age, they become more dependent on Social Security.
- Widows, in particular, are very dependent on Social Security.
II. Financial risks retirees face in late life
Rising life expectancy means many more Americans will reach very old age. While longer lives are undeniably positive, they also mean more people will face late-life financial risks for which they may be unprepared. These late-life risks include high out-of-pocket medical expenses, an increased possibility of financial mistakes due to declining cognitive abilities, and the specter of widowhood.
The takeaway seems to be that, so far, these risks adversely affect some retirees severely, but this outcome may not be that common. However, a growing number may experience such an outcome in the future. The silver lining is these risks can all be addressed largely through appropriate risk management techniques.
1 ACTION FOR YOU
I. One task you must complete to successfully transition into retirement.
Well-established research indicates there are 15 developmental tasks you need to complete while still working to transition into retirement.
We’ll look at one of these tasks for our action item this week and reveal a new one each week.
The completion of these tasks does not suggest a person should retire. However, failing to complete the tasks will put a successful transition into retirement at risk.
This week’s task is related to leisure and activity: You need to identify personal goals in retirement.
Why this is important:
- identified goals will bring clarity with what to do during retirement and what the personal implications of retirement entail
- more retirements will fail for non-financial reasons than financial reasons
- successful retirees retire to something, while failed retirees retire from something
- successful retirees find a balance between vocation and vacation, while failed retirees go from bingeing on work to bingeing on leisure
Have a Question? Want to chat about it?
Until next week,
Mark Sharp, CFP® RICP® EA