Longevity can have a bigger impact on retirement money than inflation

Tips for mapping out your retirement plan

With today’s high inflation, many Americans worry that they may not have enough money saved for retirement. They fear that sudden increases in food and energy prices and the cost of transportation and medical care could significantly affect their retirement savings.

However, there is another important factor to consider: your life expectancy.

A new report from the TIAA Institute and George Washington University finds that more than half of American adults don’t know how long people generally live in retirement, which, given their possible longevity, could cause them to fail to save enough money to see them through. long. as they themselves do.

‘Longevity literacy’ needed in retirement planning

Studies have shown that financial literacy among women consistently lags behind that of men, but the report found that women’s “longevity literacy” is higher than men’s, with 43% of women demonstrating strong longevity knowledge, compared to 32% of men.

That’s a “striking result,” said George Washington University economist Annamaria Lusardi, director of the school’s Center for Excellence in Global Financial Literacy. “We may actually need to help women, because they are aware, for example, of the fact that they live a long time, but they may not know how to deal with their long life.”

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As a result, more education about retirement planning will be especially important for women, she said.

On average, American men and women retire in their mid-60s. However, many of them may not realize that at age 60, on average, men can live 22 more years and women 25 years longer, according to calculations by the Social Security Administration.

To make your retirement money last, it’s important to take a three-pronged approach, said Suria Kolluri, head of the TIAA Institute. “Some combination of Social Security, guaranteed income for life.” [product]and then investments on top of that,” he said.

Inflation adjustments to 401(k), IRA contribution limits

Natalia Gdovskaia | Moment | Getty Images

The 2023 inflation adjustment also increased the amount of money you can save in retirement accounts. This year, you can contribute up to $22,500 to a traditional or Roth 401(k), plus $7,500 in “catch-up” contributions if you’re 50 or older for a total of $30,000.

You can also put up to $6,500 into 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 years in retirement planning

As you approach retirement, or if you’re already retired, there are key milestones to keep in mind for accumulating and withdrawing the money you’ll need in your later years. As you may be living into your mid-80s, here are some other important years to keep in mind:

  • At age 50, you can add even more money to your retirement accounts.
  • At age 59½, you can start putting money into IRAs and 401(k) plans. If you take it out early, you’ll likely pay a 10% tax penalty.
  • You can claim Social Security benefits between the ages of 62 and 70 — but if you start taking them at 62, you’ll get 30% less than you would at your full retirement age (which varies depending on your year of birth). On the other hand, you’ll see an 8% annual increase in your benefits for each year past your full retirement age that you wait to claim your benefits, up to age 70.
  • At age 65, you should sign up 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. Effective Jan. 1, the new law requires you to begin withdrawing funds — or taking “required minimum distributions” from IRAs and 401(k)s — by April 1 following the year you turn 73. The age to take RMDs will increase to 75 in 2033.

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