Most people dream of retiring by the time they are 65, but that’s not a reality for a lot of people. According to CBS News, we are currently facing three main obstacles that are stopping us from retiring at 65 like we used to. We’re living longer, median wages have idled over the past 20 years and the common shift from pension plans to 401(k)s have all created a new set of challenges to add to today’s set of retirement trends. But, there are some other factors that can affect how and when you can retire, and you'll want to factor these into your retirement planning, too.
Increasing Retirement Age
Starting in 2019 people who turn 62 will have to wait longer to claim their full retirement benefits. The full retirement age for those born in 1956 is 66 and four months. Those born in 1957 will have to wait two more months until they are 66 and six months. The bad news is the retirement age will further increase in 2-month increments over the next two years until the age reaches 67 for anyone born after 1960. But it may be worthwhile to work even past 67 to increase your retirement standard of living.
Some people elect to work beyond their retirement date to help alleviate some of the pressure of having enough income. The National Bureau of Economic Research has found that working until 70 can improve your standard of living financially by nearly 75 percent. The delay allows us to contribute to retirement plans and allows savings and investments more time to grow. Waiting to file for Social Security also means you’ll see a larger monthly check once you do retire.
If you’re at retirement age, there is some good news. In 2019 you’ll see bigger Social Security checks. The 2.8 percent cost-of-living adjustment will increase a single retired workers’ check by an estimated $39 and married couples will increase about $67. Although it may not seem like a lot, this is the largest cost of living adjustment since 2012. Social Security may not provide all of the income you will need to maintain your standard of living, usually only about 40% of average earnings. If you’ve not yet reached retirement age, you have time to save more and contribute to outside retirement accounts.
The IRS announced that 2019 contributions limits, and just about all of them are increasing compared to 2018. Although it may be more than you can afford to max out now, you can put time (and compounding interest) on your side the younger you are when saving and investing for retirement. Additionally, all while reducing the taxes you pay.
You can explore what retirement account options are available to you.
This year the government has increased the contribution limit by $500 for 2019. If you are younger than 50, the limit will be $6,000, and $7,000 if you are 51 or older. IRAs can get tricky with income limits, but this is still good news if you are looking for flexibility in your retirement investing.
If you have a 401(k) plan through your employer, you also get to enjoy higher contribution limits this year. These also have a $500 increase, so if you are under 50, you can now contribute $19,000 and those over 50 up to $25,000.
If you are self-employed and have a solo 401(k) your contribution can now be up to $56,000 for those younger than 50 and $62,000 for those over 50. That’s an increase of $1,000 from 2018. However, this is dependent how much you are making, since there are limits in place based on the percentage of your compensation.
Health Savings Accounts
A newer recommendation that many people haven’t considered is using your health savings account to save. These accounts allow both tax-deductible contributions and tax-free withdrawals for use in paying a qualified medical bill. A good double benefit that would be hard to match. Single coverage for 2019 will be $3,500 and family coverage up to $7,000. If you are 55 or older you can set aside $1,000.
Don’t Let These Retirement Trends Keep You from Saving for Your Future Now
Whether you are at retirement age, or far from it, it is a good idea to start planning and saving now. The more you understand how retirement trends change, the better you can prepare. For more information reach out to your Farm Bureau agent to make sure you understand your options and achieve your retirement goals.