All retirees should understand the process of starting Medicare benefits at 65, the required minimum distributions you'll need to take from your retirement accounts, and how the Social Security earnings test works. If none of the above applies to you, you'll need to take about 10 minutes and sign up for Medicare on the Social Security Administration's website (or you can apply at your local Social Security office or over the phone). You might need to start taking larger withdrawals from your retirement accounts If you don't need the money in your retirement accounts, it may seem like a good idea to leave it alone or just withdraw a little bit. This rule applies to pre-tax retirement accounts, such as traditional IRAs and most 401(k), 403(b), and 457 accounts. Basically, the RMD rule says that after you reach 70 1/2 years of age, you need to start withdrawing at least a certain amount of money from your account(s) each year. You have until Dec. 31 each year to satisfy your RMD requirement, with the exception of the year you turn 70 1/2, in which case you have until March 1 of the following year. This isn't true, but the Social Security "earnings test" can result in some or all of your benefits being withheld if you haven't yet reached full retirement age. Specifically, in the eyes of the Social Security Administration, beneficiaries who work are divided into three categories: If you will reach full retirement age after 2017, $1 of your benefits will be withheld for every $2 you earn in excess of $16,920 ($1,410 per month). If you will reach full retirement age during 2017, $1 of your benefits will be withheld for every $3 you earn in excess of $44,880 ($3,740 per month). You can work and earn as much as you'd like, and you'll still collect your full Social Security retirement benefit.
There’s a reason retirement plans like IRAs and 401(k)s exist. Without independent savings, retired workers won’t have enough income to pay their bills once they leave the workforce. Yet a frightening number of U.S. adults still aren’t putting money aside for the future. According to a recent GOBankingRates study, an alarming one-third of American adults still have $0 saved for retirement.
But while that statistic may not come as much of a shock, you may be surprised to learn why today’s workers aren’t saving. Here are some of the most common reasons why Americans are putting off retirement savings — and why none of them hold water.
1. We’re prioritizing other things
It’s hard to focus on retirement savings in the face of more immediate goals. If you’re trying to buy a house, for example, it’s natural to want to save for a down payment that you’ll need in a year or two before you start stashing money that you can’t touch for a few decades. But a large number of Americans are ignoring their nest eggs for far more frivolous reasons — like taking vacations.
In fact, GOBankingRates found that some workers spend more time planning their upcoming vacations than they do planning for retirement. This takeaway is consistent with a recently released report from COUNTRY Financial, which found that Americans put vacations ahead of their financial future. In fact, a good 40% of workers aren’t saving for retirement because it just plain isn’t important to them. And that’s a huge mistake, because if you don’t start putting money aside for retirement now, you’ll have less opportunity to accumulate a sufficient nest egg down the line.
Case in point: If you start saving $200 a month at age 30, and you invest that money at an average annual 7% return, then by age 65 you’ll have $332,000 to help cover your senior living costs. Wait another 20 years to start saving, however, and you’ll have just $60,000, which, over a 20-year retirement, gives you a mere $250 a month of income. And that’s hardly enough to pay the bills, even when you factor Social Security into the equation.
2. We’re spending our retirement savings on emergencies
In a separate GOBankingRates survey, 69% of Americans admitted to having less than $1,000 in the bank, while 34% owned up to having no savings at all. And that’s a problem, because every working adult should aim to amass three to six months’ worth of living expenses in an emergency fund. Yet more and more of us are cashing out our retirement savings to cover immediate expenses — a move that can have serious consequences.
Any time you remove funds from a retirement plan to cover a near-term expense, that’s money you won’t have available in the future. Not only will you lose out on that principal, but you’ll also lose out on any growth it could’ve achieved. That’s why it’s critical to keep your retirement and…