Mo Vidwans
By Mo Vidwans
It is always a bit discouraging to find out, especially at 50 and beyond, that the balance of our retirement accounts is not where we thought it would be. This is not a stretched scenario; for a variety of reasons, many of which may not be under our control, it can happen. We just have to understand where we are, pick up the pieces and figure out how we can catch up. After all there is still time left to do that, albeit we may just have to tighten the belt a bit and get lot more determined and resolute.
Help From Tax Code (IRS)
Our tax code does give us a helping hand once we cross 50 in the form of being able to contribute much more to our 401K programs and IRAs; these are known as ‘catch-up’ contributions. Traditionally, we can contribute a maximum of $6,000 to an IRA or ROTH IRA or a combination of the two in 2022 but once you cross 50, you can make additional $1,000 contribution to that every year until you stop working. Workers with access to a 401K, 457 or 403b plan can contribute additional $6,500 in 2022 on top of the regular $20,500 that they can contribute to. Everyone should make a point to contribute to 401Ks especially when some of it is matched by the companies they work for.
Personal Savings
It is said that you should start saving as soon as you start working; this thought is perpetually ignored by many with the residing thought that there is no hurry (I have plenty of time later). The fact is that even a habit of saving a small amount starting at your age of 18 or 22 can make you a millionaire at 65 because of the compounding effect of time, a subject I have discussed before here in these articles. The good news is that it is possible to accumulate $1 Million by retirement even if you haven’t started saving yet. Saving $20,500 per year (or $1,708 per month) for retirement through the age 70 will allow a person with no retirement savings at 50 to accumulate over a Million at 8 percent annualized return. There is no question that it is hard to put yourself into that determined mode, but it can be done.
Reduce Expenses
It is hard sometimes to decipher between necessary and unnecessary expenses, but the fact is that we have an obligation to sit down as a couple (family) and review where our expenses are prominent and then collectively decide how the unnecessary expenses can be cut out. Good, nutritious food is one area where I would be reluctant to cut back especially with small children but there are many other areas where the expenses can be reduced. This habit and the idea of critically evaluating everything does come handy especially when the couple retires and learns to live on fixed income, the one that is not linked to inflation. After retirement, these days, we are looking at a life span of about 25+ years with sudden addition of unforeseen medical expenses during the last few years.
Plan on Delaying Social Security
Contrary to common belief of starting the SSA as soon as possible (about 65 percent of people do it), the best thing to do is to delay taking the social security payments as much as possible; you can delay that until your age of 70. This allows to maximize your monthly payments to the fullest. Once you start the SSA, it does not change except for the annual inflation adjustment.
RMD Withdrawals
Many folks are inclined to think that they should delay their required minimum distribution (RMD) as late as possible from their retirement accounts. It certainly depends on your total wealth accumulation, but much attention must be given as to when the distribution should be started between the age of 59.5 and 72. There is income tax consideration, Medicare premium and social security taxation consideration and capital gains taxes, too. If there is a sudden rise of taxable income on your 1040 there is unfavorable implication about taxes that you may end up paying few years down the road. From the point of view of saving on taxes legally, all these are useful considerations. Congress is seriously thinking of passing SECURE 2.0 which will delay minimum age for RMD to perhaps 75. Watch this space, we may have more on this subject later.
Watch Your Health and Skills
When we are younger, we are not paying much attention (maybe not as much) to our health probably because it is taken for granted (like the song says: we are invincible). At that age that is probably true. But how we take care of our health when we are young, will affect what it will be when older age creeps in. There is nothing better than proper diet and proper exercise to manage our health in both younger and older days. Healthcare is one area where expenses can creep up substantially as we get older. Aging is not for the faint of heart. If you have good health and marketable skills, you can still make good additional money to support yourself in the golden years. There are plenty of good examples: starting from tutoring to toy making/repairing, handyman’s work to sewing prom dresses to handcrafted jewelry and making cakes, among others. Any additional money that you can earn utilizing your skills and free time is worth considering. US tax laws favor small businesses, and we should be taking full advantage of what is offered to us in the tax code.
Mo Vidwans is an independent, board certified financial planner. For details visit, vidwansFinancial.com, call 984-888-0355 or write to mpvidwans@yahoo.com
