Given today’s persistently high inflation, many Americans worry that they may not have set aside enough money for retirement. They fear that sharp increases in the price of food, energy, transportation costs, and medical care could drastically affect their retirement savings.
However, there is another important factor to consider: life expectancy.
A new report from TIAA and George Washington University reveals that more than half of American adults do not know how long people generally tend to live in retirement, which could cause them to fail to save enough money for a long time given their potential longevity. As they themselves do.
“Longevity Literacy” is required in retirement planning
Studies have shown that financial literacy among women consistently lags behind men, yet the report found that women’s “literacy for longevity” is greater than that of men, with 43% of women demonstrating a strong knowledge of longevity, compared to 32% of men.
It’s an “incredible result,” said George Washington University economist Annamaria Lusardi, director of the school’s Global Center of Excellence for Financial Literacy. “We may actually need to provide assistance to women, because they are aware, for example, of the fact that they are long-lived but may not know how to deal with their long lives.”
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As a result, more education about retirement planning will be of particular interest to 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 may live another 22 years and women can live 25 years longer, according to Social Security Administration calculations.
To make retirement funds last, it’s important to use a three-pronged approach, said Surya Kolluri, president of TIAA. “A combination of Social Security, guaranteed income for life [product]Then investments above that “may be a good way to hedge against the risks of inflation and volatile financial markets,” he said.
Inflation adjustments for 401(k) IRA contribution limits
Natalia Gdovskaya | moment | Getty Images
The 2023 inflation adjustments also increased the amount of money you can save in retirement accounts. This year, you can put up to $22,500 into a traditional or Roth 401(k) form, plus a $7,500 “compensation” if you’re 50 or older for a total of $30,000.
You can also put up to $6,500 in a Roth IRA. With a compensation contribution of $1,000, you can save a total of $7,500 if you’re 50 or older.
Here are the key ages in retirement planning
As you approach retirement, or if you are already retired, there are major milestones to consider for accumulating and withdrawing the money you will need in your later years. Given that you may be living into your mid-80s, here are some other important ages to consider:
- At age 50, you can add more money to your retirement accounts.
- At age 59½, you can start making money withdrawing into IRAs and 401(k) plans. If you remove it earlier, you will likely pay a 10% tax penalty.
- Between ages 62 and 70, you can claim Social Security benefits—but if you start getting them at age 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 after the full retirement age that you wait to claim your benefits, up until age 70.
- At age 65, you must apply for Medicare — or you may have to pay a penalty if you are not covered by another health plan.
- And turning 73 has become a very significant birthday. Starting January 1, a new law requires you to begin making withdrawals — or taking “required minimum distributions” from IRAs and 401(k)s — by April 1 after the year you turn 73. The age for taking RMDs will increase to 75 in 2033.
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