Given today’s ongoing high inflation, many Americans worry they may not have put away enough money for retirement. They fear that sharp increases in food and energy prices and transportation and medical care costs could significantly affect their retirement savings.
Yet there’s another important factor to consider: your life expectancy.
A new report from the TIAA Institute and George Washington University reveals that more than half of American adults don’t know how long people generally tend to live in retirement, which given their possible longevity could have them failing to save enough money to last as long as they themselves do.
‘Longevity literacy’ needed in retirement planning
Studies have shown financial literacy among women consistently lags that of men, yet the report found the “longevity literacy” of women is greater than men, with 43% of women demonstrating strong longevity knowledge, compared to 32% of men.
It’s a “striking result,” said George Washington University economist Annamaria Lusardi, director of the school’s Global Financial Literacy Excellence Center. “We might actually need to provide help to women, because they are aware, for example, of the fact that they live long but they might not know about how to deal with their living long.”
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In consequence, greater education about retirement planning will be especially important for women, she said.
On average, American men and women retire in their mid-60s. Yet many of them may not realize that at age 60, on average, men may live another 22 years and women could live 25 years longer, according to the Social Security Administration’s calculations.
To make your retirement money last, it is important to use a three-pronged approach, said Surya Kolluri, head of the TIAA Institute. “Some combination of Social Security, a guaranteed lifetime income [product], and then investments on top of that” might be a good way to hedge the risk of inflation and rocky financial markets, he said.
Inflation adjustments up 401(k), IRA contribution limits
Inflation adjustments for 2023 have also increased the amount of money that you can save in retirement accounts. This year, you can put up to $22,500 in a traditional or Roth 401(k), plus a $7,500 “catch-up” contribution if you’re 50 or older for a total of $30,000.
You can also put up to $6,500 in a traditional or Roth IRA. With a $1,000 catch-up contribution, you could save a total of $7,500 if you’re 50 or older.
Here are the key ages in retirement planning
As you near retirement, or if you’re already retired, there are key milestones to keep in mind for accumulating and withdrawing the money you’ll need for your later years. Considering you may live into your mid-80s, here are some other important ages to keep in mind:
- At 50, you can add even more money to your retirement accounts.
- At age 59½, you can start to make withdrawal money in IRAs and 401(k) plans. If you take it out earlier, you’ll likely pay a 10% tax penalty.
- Between 62 and 70, you can claim Social Security benefits — but if you start taking it at 62 you’ll get 30% less than you would at your full retirement age (which varies depending on the year of your birth). On the other hand, you’ll see an 8% annual increase in your benefit for every year after your full retirement age that you wait to claim your benefits, up to age 70.
- At age 65, you should apply for Medicare — or you may have to pay a penalty if you’re not covered by another health plan.
- And, turning 73 has become a very important birthday. As of Jan. 1, a new law requires you to start making withdrawals — or taking “required minimum distributions” from IRAs and 401(k)s — by April 1 after the year you reach age 73. The age for taking RMDs will increase to 75 in 2033.
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