Crucial Steps to Take When Retiring

I recently attended a webinar about preparation for retirement. The speaker was nationally renowned retirement planning expert Dr. Wade Pfau, author of Retirement Planning Guidebook. Below are six of my key take-aways from his presentation:

Know Your Style- Your retirement income style describes your retirement income preferences. According to Dr. Pfau’s RISA® tool, Probability-Based vs. Safety-First indicates whether someone is more comfortable relying on market growth potential or on contractual guarantees (e.g., pension, annuity). Optionality vs. Commitment indicates whether someone values flexibility to adjust their plan or prefers to commit to a structured, potentially irrevocable, retirement income strategy.

 

Inventory Your Assets- To see where you stand, create a master inventory of assets and debts, including account numbers, account values, ownership details (e.g., individual or joint tenancy with right of survivorship), beneficiary designations, and probate status. Calculate net worth by subtracting the value of debts from assets and update it annually. Request in-force illustrations of the cash value of whole life insurance policies.

 

Establish Decision-Making Authority- An advance directive is a legal document outlining your healthcare wishes if you cannot speak for yourself. A living Will is a written statement detailing which medical treatments you consent to or refuse (such as ventilation, artificial nutrition, or CPR) in end-of-life scenarios. A financial durable power of attorney is a legal document that allows you to appoint a trusted person or organization to manage your financial affairs.

 

Create an Estate Plan- Write and periodically review and/or update a will that designates to whom your assets will go. Be sure that there are no conflicts between provisions in your will and asset ownership titles, which have priority. The four essential estate planning documents are generally considered to be a last will and testament (will), a durable power of attorney (for finances), a healthcare power of attorney (or proxy), and a living will. Some people also use trusts.

 

Study Social Security Claiming Options- Higher earners in a couple may consider delaying Social Security benefits up to age 70 for a higher future benefit for both themselves and their lower-earning spouse (survivor benefits). Delayed retirement credits of 8% a year are available between full retirement age and age 70. It is smart to verify your Social Security covered earnings annually by setting up an account at https://www.ssa.gov/myaccount/.

 

Plan Ahead for Spending Shocks- Some of the most common spending shocks that older adults face are sequence of returns risk, inflation, long-term care expenses, death of a spouse, family responsibilities, frailty in later life, cognitive decline, and forced early retirement. About half of retirees do not pick their retirement date- it is forced upon them.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

The webinar ended by describing 4 Ls of retirement: Longevity, Lifestyle, Legacy, and Liquidity.

Take-Aways from a Panel Discussion About Retirement

 

I recently attended a webinar about retirement planning that featured a panel of four retired Cooperative Extension educators who did the same type of community education work that I did when I worked for Rutgers Cooperative Extension in New Jersey.

 

Below are my key take-aways:

 

Retire to Something- Everyone on the panel concurred that it is wise to have a post-career plan before you retire, especially after an impactful and time-intensive career. Whether it is working part time, volunteering, starting a business, traveling, or care-giving, the choice is up to you.

 

Schedule “Me Time”- It is easy to get sucked into too many commitments after leaving a full-time job. Everyone just assumes that “you have the time.” It is important to schedule time for yourself and protect your schedule.

 

Do Retirement Savings Calculations- Several panelists noted that they could have retired sooner than they actually did and advised the audience to put some effort into calculating what you need to save during your working years to have “enough” in later life.

 

Prepare for an Orderly Exit- Clean out paper work files and decide what needs to stay at your workplace or what can be copied or scanned for personal use later. This is especially true if you plan to leverage your skills through a post-retirement encore career or entrepreneurship.

 

Buy a Personal Computer- Several panelists had previously only used a computer that belonged to their employer. They spoke about the importance of buying your own laptop or desktop to transfer important files to. Another way to do transfer files is using an external hard drive.

 

Consider Entrepreneurship- Several panelists started post-retirement businesses for meaning and purpose and structure to their day as well as income. Some also were not covered by Social Security during their primary career and started a business to earn Social Security quarters of coverage or to increase their benefits by replacing “0” or low-earning years with higher earnings.

 

Help Your Successors- Not everyone on the panel had a named replacement for their position when they retired. A few did. Either way, panelists recommended leaving an “orientation” letter and a jump drive with important files for their successor.

 

Use Your Leave Time- Take all your vacation days and a sabbatical, if possible, while you are working. Long stretches of time off will prepare you to be away from the office and test family relationships with an extended period of closeness.

 

Don’t Worry About Being Replaced- Every panelist recommended retiring when the time is right for you. Your employer will continue your work responsibilities…or not. That is not your problem. Don’t work longer than you want just to “save” your program or department.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Take-Aways from a Retirement 101 Webinar

I recently attended a Retirement 101 webinar sponsored by the New York Public Library called Retirement Planning 101: Strategies to Maximize Your Life in Retirement. The webinar included content about retirement planning, investments, building wealth, retirement income streams (e.g., Social Security, pension, investment withdrawals), health care costs, and long-term care.

Below are eight of my key take-aways:

Meanings of Retirement- Everyone has their own personal definition but some common themes related to a “good retirement” are financial freedom (not relying on employment income), lifestyle choices (freedom to do what you want), security and independence (adequate resources to handle life events), and legacy (opportunity to leave behind support for heirs and charities).

Benefits of Early Saving- Compound interest and time are your greatest allies. Starting even a small retirement account in your 20s or 30s dramatically increases your savings nest egg and  reduces the amount needed to save in later life. An investment of $250 per month earning a 7% annual return starting at ages 25 and 35 would be worth $656,000 and $304,000, respectively.

Overcoming Barriers- Some people say, “I don’t earn enough to save.” The solution is to start small. Even modest savings can grow significantly over time. Other people say, “I have to pay off debt first.” The solution is to balance debt repayment with retirement savings, especially if an employer matches retirement plan contributions.

Investment Vehicles- There are several places where people can save for retirement including employer-sponsored plans (e.g., 401(k), 403(b), TSP), individual retirement accounts (IRAs), and personal investment (i.e., brokerage) accounts. Advantages include potential employer matches (employer accounts), tax benefits, and long-term growth.

Reinvested Investment Earnings- When you reinvest dividends and capital gains earned on investments (e.g., stock mutual funds), you generate returns on those returns via compounding. Over time, compounding can significantly boost the overall return on an investor’s portfolio.

Retirement Income Sources- Defined benefit plans (pensions), which are less common than decades ago, pay a specific monthly benefit for life determined by a formula based on salary and years of service. Defined contribution plans (e.g., 401(k)s) allow workers to voluntarily contribute a set percentage of income to a personal retirement savings account that must be managed when they retire. Some workers convert their accumulated balance into an annuity at retirement.

Investment Withdrawal Methods- Common methods to withdraw retirement savings to avoid running out of money include the 4% Rule, a bucket strategy (assets segmented into “buckets” (groups) for short-term, mid-term, and long-term goals), and using required minimum distributions (RMDs) as a withdrawal strategy after age 73 or 75 (depending on year of birth).

Long-Term Care (LTC) Planning- LTC is the need for help with activities of daily living (e.g., eating, bathing, and dressing). Costs vary by state and level of care (e.g., assisted living, nursing home). Options to cover LTC expenses include LTC insurance, hybrid LTC insurance (life insurance with a LTC rider), self-funding, and Medicaid, if applicable.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Reinventing Retirement: Customizing Your Third Third

 

People’s lives can grouped into three basic chapters: youth/education, career, and post-career (a.k.a., retirement). In the first chapter, our lives are controlled by parents and teachers and, in the second, people have career and/or family responsibilities. 

It is not until the third chapter that many people have the ability to decide what they want to do and who they want to be.

 

People spend about 30% of their adult lives in retirement. I recently attended a presentation called Reinventing Retirement and below are seven take-aways about this final phase of life:

 

Freedom and Flexibility- Later life provides a long-awaited opportunity to “customize” your lifestyle. Of course, people have different tastes, interests, and personal situations that influence what they expect but, for most older adults, it’s about having more time, freedom, and flexibility than before. The question then becomes what to do with that time and freedom.

 

Retirement’s Many Faces- Lifestyles in retirement include completely stopping work, pursuing a new line of work or starting a business, more actively volunteering, spending more time traveling, pursuing hobbies and interests, caring for loved ones, and more. A phrase used several times during the class was “If I’m not dead, I’m not finished.”

 

Current Retirement Trends- Baby Boomers have more discretionary income than previous generations of retirees. They are redefining the meaning of retirement in many ways including retiring later, continuing to work, and unretiring; finding new ways to make and maintain social connections; increased focus on health and fitness; and pursuing lifelong learning.

 

Retiring “To” Rather Than “From”- It can be stressful to leave the working world, particularly for people whose identity was wrapped up in their job. It is, therefore, essential to plan your next move. Without having something to retire to, people can feel a loss of importance and daily time structure and miss work-related interactions and friendships.

 

Ageism and Discrimination- Just because many older adults want to work does not mean they can easily find a job. Ageism and age discrimination in the workplace are commonplace and an AARP survey found that two-thirds of older adults have seen or experienced it. Increasingly, older adults are getting around that problem by working for themselves or buying franchises.

 

The Social Side- Many of today’s retirees do not live in close geographic proximity to family. Instead, they create a sense of family with people who are not necessarily blood relatives. A growing trend among people who choose to relocate is recruiting friends to become neighbors.

 

Life-Long Learning- Intellectual stimulation isn’t just for the young. Continuous learning is an important investment in brain health and a key anti-aging strategy. It can also help older adults discover and develop new talents. There are always new things to learn and try. One recommendation given at the class was to set a goal to try something new every month.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Retire on Fire Class Series: Key Take-Aways

 

As the author of a book about transitions in later life, I recently served as a presenter for one session of a five-week online course called Retire on Fire: How You Can Thrive in Retirement. It was a pro bono presentation but one of the perks for doing so was free registration for the course and an opportunity to learn from the four other instructors.

Because I love to learn, I decided to take that opportunity and attend the course as a student when I was not teaching myself. Below are nine take-aways that I took away from the course about planning for, and living in, retirement:

 

Core Activities- One of the instructors recommended having three core passions or activities that provide daily time structure and a sense of meaning and purpose.

 

Social Contacts- Students were encouraged to initiate calls, texts, and e-mails to others, to travel with friends, to join organized groups, and to try new things to see if you like them or not. One speaker referred to this as a “tapas life,” where you sample different activities, keep some, and drop some.

 

Go-Go Years Spending- Ages 65 to 74 are often called the “go-go” years when many retirees are active and healthy. It may be okay to spend more money in the early years of retirement because many people do not spend as much in the “slow go” years that follow. Check with a financial advisor or try several retirement calculators to be sure.

 

Retirement Happiness- Research about retiree happiness by Wes Moss found the following characteristics of the happiest retirees: 3.6 core pursuits, attend church at least 1-2 times a year, have 3.6 close connections, and one core social epicenter (e.g., a church or volunteer site or social group).

 

Retirement Phases- Research by Riley Moynes identified four phases of retirement: 1. Vacation (a.k.a., “honeymoon”), 2. Loss (i.e., a feeling that life lacks purpose without work; about 10-15% of retirees skip this phase), 3. Experimentation (try new things), and 4. Reward (reinvent yourself).

 

Longer Life Expectancy- Many older adults live well into their 80s or 90s and this is a gift. It is up to them to take ownership of their final phase of life. “Reframe” and focus on positive aspects of aging. Also, focus on relationships and growth. There is no growth in your comfort zone.

 

Family Togetherness- A speaker told the story of a client who moved across the country to “be with family.” His family, however, did not expect to spend so much time with him and it was awkward. The client was very lonely because he knew nobody in his new geographical area except his busy family.

 

Lack of Planning- A speaker who was a financial planner noted that about 90% of his clients haven’t figured out what to do with the rest of their life. If your entire retirement plan is to spend more time with family and friends, you better check in with them first.

 

Success Metrics- Put at least three things per day on your schedule, even mundane activities like bill-paying and walking. Completing them and crossing them off your to-do list is a measure of success.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Finding Meaning and Purpose in Later Life

 

The statistics are startling! According to a 2020 study, 28% of retirees suffer from depression. That’s almost 3 in 10 older adults! As blogger Fritz Gilbert wrote in his Retirement Manifesto blog, “that’s a shockingly high number and far too little is written about this problem.” He went on to note that “those forced into retirement (i.e., through downsizing or illness) are especially prone to experiencing the challenge of depression.”

 

One reason so many older adults are depressed is lack of a fulfilling sense of purpose (a.k.a., a motive “to get up in the morning” or, as the Japanese call it, ikigai, loosely translated as an overriding passion that adds joy to life). Gilbert notes, “retirement is a big adjustment, with the loss of many of the non-financial benefits once received from the workplace (sense of identity, purpose, relationships, structure, etc.) coming as a surprise to many.”  

Research indicates that people with a strong sense of purpose are happier, healthier, and live longer. Below are five strategies to navigate retirement to find meaning and purpose in later life:

 

Develop a New Descriptor- As I note in my book, Flipping a Switch, retirees need a new off-the-cuff answer to the “What Do You Do?” question to avoid awkward silences or outdated descriptions of previous work. Responses can reflect new jobs, volunteerism, creative works, or care-giving roles. They can also be humorous; i.e., “whatever I want” or “as little as possible.”

 

Focus on Four Pillars- Research by the investment firm Edward Jones and Age Wave noted that there are four key pillars to a fulfilling retirement: good health, family, a strong sense of purpose, and financial security. The Edward Jones online My Priorities quiz is a useful tool to identify personal values from among competing spending choices.

 

Find Role Models- Older adults who are living a joyful and fulfilling life can provide valuable insights. Take the time to interview them and ask questions like “What is a typical weekday like?,” “What activities bring you joy and purpose?”, “What are new activities that you tried for the first time in retirement?”, and “What part of your former job do you miss the most?”

 

Use Planning Tools- Activities in later life typically don’t happen without planning. On page 83 of Flipping A Switch is a reproduceable Financial Bucket List worksheet with over dozen lines to list planned activities (e.g., visiting national parks, sky diving, writing a book, starting a business, taking courses, reconnecting with family or friends, and family genealogy). Another popular planning tool is a Retirement Vision Board with photos or clippings that show memories that people want to create in the future (e.g., travel, encore career, and volunteering).

 

Practice Identity Bridging- Not everything associated with peoples’ pre-retirement life needs to disappear after their final paycheck. Far from it! Instead, retirement transition experts recommend asking the question “What activities (e.g., professional association memberships or volunteer roles) do I want to carry over from my past into my future?

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 

 

Tax-Deferred Retirement Savings Plans in Later Life

One place where there is a gap in adult financial education is programs for older adults age 65+. The bulk of community and workplace programs cover financial tasks and decisions to get “to retirement,” not “through retirement." 

One of the niche audiences for my business, Money Talk, is older adults grappling with financial issues such as creation of a retirement “paycheck,” paying taxes on required minimum distributions (RMDs), and simplifying financial accounts.

 

Below are key points from a recent class that I taught about tax-deferred retirement savings plans:

Tax Diversification- There are three types of investments: 1. Taxable accounts outside of retirement savings plans, 2. Tax-free accounts (e.g., Roth IRAs and municipal bonds), and 3. Tax-deferred accounts (e.g., Traditional IRAs and employer plans). Ideally, investors should have investments in all three categories for greater control over their taxable income.

 

Types of Tax-Deferred Accounts- These include employer-sponsored defined contribution plans (e.g., 401(k), 403(b), 457, thrift savings plan), Traditional IRAs funded with pre-tax dollars, simplified employee pensions (SEPs) for self-employed workers, and annuities.

 

Account Beneficiaries- It is unlikely that long-time savers with large balances will die without leaving some money in one or more tax-deferred retirement plans. It is wise to periodically review named beneficiaries and prepare a master list for periodic review and/or revision. Beneficiary types include a spouse, non-spouse (e.g., child), and qualified charity (if allowed).

 

Account Consolidation- Benefits include fewer account management fees, less maintenance (e.g., account logins, tax statements, e-mails, and investment decisions), and greater ease in calculating and withdrawing RMDs and administering a deceased person’s estate.

 

Direct Rollovers- Custodian A should send account proceeds directly to Custodian B. Indirect rollovers (where an account holder is sent the money) should be avoided because there is a strict 60-day time limit to reinvest the money in a new account and withholding taxes usually apply.

 

Rebalancing and RMDs- When RMD withdrawals are made, account owners may have to rebalance the asset allocation of their portfolio. In bull (rising) markets, consider selling assets (for a withdrawal) that have appreciated more than others to get back to target percentages.

 

RMD Calculation- A new life expectancy table took effect in 2022. Simply divide the balance in a tax-deferred account on December 31 of the prior year by the divisor in the table that matches your age. For example, $100,000 ÷ 26.5 (the divisor for age 73) = $3,774 (rounded). As retirees get older, the RMD percentage of their account balance gradually increases.

 

Account Withdrawal Timing- Account owners can make penalty-free withdrawals from tax-deferred accounts after age 59.5. Those with large balances and those who need money for living expenses may benefit from withdrawals before their RMD start date. Withdrawn money can be used for living expenses, savings in a taxable account, charitable or family gifts, and fun.

 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 

Financial and Lifestyle Concerns of Retirees

I recently attended several programs geared for older adults and read several books about living in retirement. Below are some key takeaways:

Common Fears- Many surveys indicate that the #1 fear of retirees is running out of money during their lifetime. Other frequently cited fears are health care expenses, long-term care expenses (e.g., assisted living and/or skilled nursing care), steep stock market declines, death of a spouse and a subsequent loss of spousal income, the financial needs of adult children and grandchildren, and inflation.

Tax Concerns- Some retirees, especially those who were diligent savers during their working years, wind up in a higher tax bracket in retirement than they were in during their primary careers. Reasons include required minimum distributions (RMDs) from tax-deferred retirement savings accounts and fewer tax write-offs such as mortgage interest. Taxes are exacerbated when one spouse in a couple dies, and the survivor must file taxes as an individual. This may trigger tax on Social Security, Medicare IRMAA tax, and other income-based taxes.

Tax Diversification- Ideally, retirees should have assets in three different “buckets” that are taxed differently: taxable investment accounts, tax-free investments (e.g., Roth accounts and municipal bonds), and tax-deferred retirement savings accounts (e.g., traditional RIRAs and 401(k)s). Having just tax-deferred accounts that postpone taxes to the future can be an expensive “tax bomb” that explodes in later life.

Present Bias- A common error of younger retirees is thinking that their life will always look the way it does today (i.e., their health and ability to do things). Sixty-year olds have a difficult time, for example, picturing themselves in their 80s and 90s. This is understandable because nobody wants to picture themselves in decline or having physical limitations. Financial experts advise living for today but planning for tomorrow.

Hybrid Insurance Plans- Many people are hesitant to purchase long-term care insurance (LTCI) because it can be difficult to find, is expensive (especially after age 60), and they may not need it. This has led to the availability of life insurance with a chronic illness rider. If someone doesn’t use the LTCI benefit, the life insurance benefit goes to a named beneficiary. Some people use RMD withdrawals to pay for a LTCI policy.

Sobering Statistics- One program speaker noted that 43% of baby boomers may not be able to afford basic living expenses throughout the duration of their retirement. Women, especially, are at risk due to lower average lifetime earnings than men and more gaps in their work history due to caregiving. When people are forced to make financial decisions out of desperation, their options are limited.

Work in Retirement- To quote Joe Casey, author of Win the Retirement Game, “many people discover that their money is better prepared for retirement than they are.” Retirement used to be viewed as a period of withdrawal and decline. It is now viewed by many as a period of renewal, engagement, meaningful pursuits, and personal growth and often includes some form of paid or unpaid work. For some people, “kicking back” and relaxing is not enough. They want to do things that have meaning and purpose.

Physical Health- When people leave a full-time job, they are “time-rich” and have approximately 2,500 hours of free time (50 hours a week for work and commuting x 50 weeks). This provides an opportunity to prepare healthy meals, get needed health screening tests, and engage in regular physical activity. More than 2023 years ago, the poet Virgil noted that “the greatest wealth is health.”

Skill Repurposing- Many retirees gradually figure out how to replace things they got from work beyond a paycheck (e.g., social connections, creativity, sense of purpose). Retirement does not necessarily mean abandoning everything  you used to do- but, rather, repurposing contacts, skills, and experiences in new ways. “Identity bridging” is the process of carrying over some parts of pre-retirement life into retirement while disengaging from others. It is important to have a “growth mindset.

In summary, to enjoy your years in later life, take care of your mental, physical, and fiscal health. For more information about happiness and financial security in later life, read my book, Flipping a Switch.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Roth IRA Q&A

Roth IRAs are a popular investment for retirement savings. They are available to workers with earned income (i.e., salary, bonuses, or self-employment) under phaseout limits that are adjusted annually for inflation.

Below are answers to nine commonly asked questions about Roth IRAs:

 

 What is a Roth IRA?  A Roth IRA is a personal retirement account that lets people benefit from tax-free interest growth, providing they meet certain conditions. Contributions (deposits) are made with after-tax income (i.e., money that has already been taxed). A Roth IRA is not an investment  “product” per se but a special account that people put investment products into. Examples include mutual funds, bonds, individual stocks, certificates of deposit, and other investments that are available through financial institutions.

 

 Why is it Called a Roth IRA?  Roth IRAs were named after U.S. Senator William Roth (from Delaware) who spearheaded the effort to create them. They became a retirement savings option starting in 1998.

 

 How Does a Roth IRA Differ from a Traditional IRA? Traditional IRAs are made with before-tax dollars (i.e., money that has not been taxed) and withdrawals are taxed as ordinary income. Required minimum distributions (RMDs) must begin starting at age 72. Earnings in a Roth IRA can be withdrawn tax-free once an investor reaches age 59 ½ and an account has been in place for at least five years. Taxpayers who want to hedge IRA tax benefits may decide to split their annual deposit between Traditional and Roth accounts.

 

 What is the Maximum That People Can Contribute? In 2022, workers can contribute up to $6,000 (or the amount of earned income, whichever is less). Workers age 50+ can contribute an additional $1,000 as a “catch-up” contribution, for a total maximum deposit of $7,000. Deposits can be made in a single lump sum or in smaller increments throughout the year.

 

 What is the Minimum That People Can Contribute? Workers can make deposits up to the annual maximum limit. The minimum deposit amount is typically determined by plan custodians (e.g., a bank or mutual fund). There is nothing wrong with contributing only $500 or $1,000 to a Roth IRA if that is all that someone can afford.  Any savings is always better than no savings.

 

 What is the Deadline to Make a Roth IRA Deposit? Roth IRA deposits can be made as early as the first business day of each year. Conversely, taxpayers have until the tax filing deadline (on or about April 15^th of the following year) to contribute. For example, April 2023 is the deadline to contribute to 2022 Roth IRAs.

 

 Are There Income Restrictions on Roth IRAs? Yes – income for single taxpayers must be less than $129,000 (MAGI – modified adjusted gross income) to deposit the full $6,000 (or $7,000) maximum amount. Income above that results in reduced contributions until it exceeds $144,000 MAGI. At that point, someone is no longer eligible to contribute. The phase-out range for Roth IRAs for married couples filing jointly is up to $204,000 (for a full contribution) to $214,000 (above which, no Roth IRA contribution is allowed).

 Where Can People Go to Start a Roth IRA? Taxpayers can contact just about any financial institution (e.g., banks, brokerage firms, mutual funds, and insurance companies) to select investments for a Roth IRA.  Many investors choose no-load mutual funds that offer a variety of options with low fees. Most mutual fund companies require a minimum investment to start a Roth IRA, typically between $500 and $2,500. Some companies allow an investor to start an IRA account with less money than is required for a non-IRA account.

 Where Can People Learn More About Roth IRAs? Cooperative Extension’s Investing for Your Future home study course is a useful resource. Unit 7, “Tax-Deferred Investments,” includes information about Roth IRAs and Units 4-6 discuss various investment products that can be used to fund a Roth IRA. Other useful resources are the Roth IRA Calculator from Bankrate and Roth IRA Basics from Investopedia.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Retirement- Now What? Key Take-Aways from a Seminar for Older Adults

Being the author of a book about transitions in later life, I am always on the lookout for new information about this topic. I recently attended a face-to-face class called Retirement-Now What? that focused on the same transitions I wrote about.

The class started with two questions for each participant: are you retired? and are you happy? When it was my turn to respond, I reiterated a long-standing description of my current status: “No, I am not retired. I am a full-time financial education entrepreneur.” I also stated I was happy because I love my work, my short (3 second) commute, my new house in Florida, and the flexibility I have to take time off to have lunch with neighbors, play bocce, or enjoy other pursuits.

 

Unfortunately, not all participants felt the same way. A 74-year-old man stated he was unhappy with his life, three recent moves, a spouse that “doesn’t want to do anything,” and his wife’s dog that keeps him tied to his house. He also noted that he missed the creativity and connections that he received from his previous job.

 

A former nurse (for 42 years) stated that she was “bored out of her mind” and “borderline depressed.” She missed her career and the sense that she was helping others. Another participant had a husband with dementia and was angry that she was forced to retire before she planned. Someone else noted that her husband died in an unhappy state shortly after retiring: “he never developed a sense of himself and golf got boring.”

 

As each participant shared their story, the 84-year-old instructor shared tips from psychological research (she was a former psychology professor!) and her own lived experience. Her basic message was that retirement is a process and that people’s lives will change many times throughout later life. Below are eight take-aways from the class discussion:

 

¨    Retirement Can be Stressful- Program participants noted financial and social/emotional challenges. According to the widely used Social Readjustment Rating Scale (a.k.a., Holmes and Rahe Stress Scale), retirement is #10 on a list of 43 stressful life events including death of a spouse (#1), divorce (#2), marriage (#7), and being fired at work (#8).

 

¨    There Are Many Changes- Participants mentioned living on a reduced income, changes in social interactions, time use challenges (i.e., having nowhere to go), no boss telling them what to do, casual wardrobe changes, and the realization that they are in the last part of their life and may be buying things (e.g., a car or appliance) for the last time.

 

¨    Identity Loss is Common- When people exit the workforce, they are no longer whatever career role they were before and can lose their sense of identity. It is important to replace things that are lost such as new friends and activities (especially in a new location) and new outlets for creativity and service (e.g., freelance work and volunteerism).

 

¨    Retirement is a State of Mind- Retirement is the beginning of a new chapter of life- not the end of it. A key to success is deciding how to approach it and what to do with big chunks of free time that become available. Many retirees want to feel productive, useful, and of value/service to others, so finding ways to make contributions is an important task in later life. As people change over time (e.g., 60s to 80s), people around them can change also.

 

¨    Time Use Planning is Essential- People need structure. The program facilitator suggested organizing time into chunks (e.g., meals, reading, exercise) to avoid feeling totally “adrift.” Time-shift daily activities as needed according to weather conditions (e.g., cold winters and hot summers), medical appointments, and other scheduling needs.

 

¨    Experimentation is OK- Try new things and see what sticks. Continue activities you like and drop those that you don’t. Unlike workplace situations, there is no pressure in retirement to do things perfectly and not make mistakes. The stress that many people feel in retirement is stress that they, themselves, create.

 

¨    The Past is in the Past- Nobody cares (much) about what retirees used to do. This is a difficult transition for many people and contributes to feelings of isolation, uselessness, and “being put out to pasture.” Some of the happiest retirees practice “identity bridging” and find ways to carry over parts of their pre-retirement life into their later years.

 

¨    Key Questions to Ask- The presenter suggested answering the following questions when deciding how to create your life in retirement: Did (Do) I really want to retire? How do I feel about it deep inside? Who wanted to retire: me or someone else (e.g., a spouse)? How do I see myself right now? How do I imagine my new life? What are my talents? What do I like to do? What did I want to do at 30 and never got around to? and What dreams did I not follow?

 This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.