Due to the increasing average lifespan of humans, it may make sense to consider waiting until age seventy to retire. Even if you decide to retire before age seventy, you will want to know about the seven financial matters that change around the time you turn seventy.
Social Security benefits stop growing at age seventy
Up until age seventy, delayed retirement credits are added to your Social Security benefits. As a result, there is much to gain by postponing Social Security payments.
If you delay Social Security payments until age seventy, you will receive 132% of the monthly benefits because you delayed receiving payments for 48 months. However, there is no reason to wait past age seventy to start receiving payments. For some couples, for instance, there can be a lot to gain by delaying the start of Social Security payments for the higher-earning spouse until they turn seventy.
This way, the higher amount will continue to provide survivor benefits for the longer-living spouse and can provide an inflation-adjusted income for life.
Required minimum distributions start at age seventy and two
The IRS rules state that you must begin withdrawing money from your retirement accounts, like IRAs or 401(k) plans, by age seventy and two. Although many people wait until they are required to take these distributions, that doesn’t always mean it’s the right thing to do.
If you have low-income years before you reach age seventy and two, it may make sense to withdraw money from retirement accounts and pay little or no tax on the withdrawn funds. You will need to estimate your taxes each year to determine what is best. However, at age seventy and two, you will be forced to start withdrawing money or taking required distributions from your IRA, SEP IRA, Simple IRA, and 401(k) accounts.
It is important to note that if you do not take the required distribution at age seventy and two, the IRS will impose a penalty tax on the portion you did not withdraw. The IRS states: “You may have to pay tax on the amount not distributed as required.” Required distributions do not have to be taken from Roth IRA accounts.
Guaranteed income options might be an option
The longer you live, the more you may need money. If you have good genes and live a healthy life, you might want to consider guaranteed income options that provide lifetime income. Some of these options, such as immediate annuities, become a good option at age seventy, but you should do research and consult a financial advisor because there are pros and cons to all types of annuities.
Credits reward you for living longer
Retirement income sources like immediate annuities give you access to a “longevity credit.” This means that some people who purchase immediate annuities may die before the expected date, so those who live longer than expected receive this credit. This type of product becomes a good option around age seventy and can ensure that your income does not run out.
Reverse mortgages may allow you to earn money
Reverse mortgages are a financial tool to consider at age seventy and beyond. They can allow you to use the equity in your home to receive income while you continue to live in it for as long as you wish. Reverse mortgages can be an option that provides you with income and allows you to stay in your home. And despite what you may have heard, the bank cannot take your home with this type of reverse mortgage.
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Making Investments Less Risky
If you are going to retire at age seventy and need income from your savings and investments, you will need to know which ones can bring you the required amount of income. This is not the time to take risks. You need this money to last throughout your life.
You can use safe investments that may only pay a modest income, but the principal amount will be safe. For example, you can use a bond ladder. A bond ladder is when you buy bonds with staggered maturities over a certain period, like a ladder. You will withdraw the money when the bond matures to receive income from the bond.
You can also build a portfolio by following a set of withdrawal rate rules. One of these rules is the 4% rule, which allows you to withdraw 4% of your initial balance each year as income. The idea behind this rule is that by only withdrawing 4% each year and investing the rest of your savings, you won’t run out of money when you retire.
You may want to consider consulting with a retirement planner to help you determine what is best for you.
Keep Documents Properly
Age seventy is also a good time to ensure you have a medical emergency plan in place. It can be as simple as having a set of written instructions for a trusted family member or friend.
You will want to make sure you have a trusted person to manage your affairs if you are unable to do so. This can be done through a trust or through a durable power of attorney and a healthcare power of attorney. Be sure to review your beneficiary designations and other important estate planning items such as your will or power of attorney.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
IRS. “Frequently Asked Questions About Required Minimum Distributions from Retirement Plans and IRAs.”
Source: https://www.thebalancemoney.com/why-retire-at-70-2389048
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