A Roth IRA comes with seriously sweet benefits for retirement savers.
It’s an individual retirement account — that means you open and fund it, not your employer.
Here’s the best thing about it: You invest money you’ve already paid taxes on. Your money grows… and grows… and once you reach age 59 ½ and you’ve had the account for at least five years, all those earnings are yours tax-free. Plus, you can withdraw your contributions whenever you want without paying taxes or penalties.
Because Roth IRA tax savings are generous, Uncle Sam limits how much you can contribute and how much you can earn to be eligible to contribute to one.
Here are the Roth IRA limits you need to know about.
Roth IRA Limits for 2023
The IRS typically adjusts Roth IRA contribution and income limits every year. These are the limits for 2023.
Roth IRA Contribution Limits: How Much Can You Invest?
If you’re under age 50, you can contribute up to $6,500 to an IRA in 2023. That’s a $500 increase from the $6,000 limit in 2022. If you’re 50 or older, you can contribute an extra $1,000, meaning your limit is $7,500, up from $7,000 in 2022.
Note that these are the limits for your overall IRA contributions. If you have both a Roth IRA and a traditional IRA and you’re under 50, your total contributions to both accounts can’t be more than $6,500.
What about married people? A couple can’t open an IRA. Remember: It’s an individual retirement account.
Provided that you’re eligible under the Roth IRA rules, you could each open a Roth IRA and contribute up to the maximum, so you’d contribute a total of up to $13,000 between your two IRAs, or up to $15,000 if you’re both part of the 50-plus crowd.
Pro Tip
You can fund your Roth IRA for the year all the way up to the tax-filing deadline, so you have until April 18, 2023, to max out your contribution for 2022.
Roth IRA Income Limits: Do You Earn Too Much?
First off, to contribute to any type of IRA, you need taxable income, such as money you earn at a regular job or self-employment income.
To determine whether you qualify, you’ll need to calculate your modified adjusted gross income, often abbreviated as MAGI or modified AGI. That’s your adjusted gross income — which you can find on your 1040, 1040a or 1040ez tax form — plus some deductions, such as student loan interest payments or contributions to a health savings account. (Since your MAGI is what matters for Roth IRAs, that’s what we’re talking about when we refer to income throughout this article.) You’re eligible to contribute if your income falls within these thresholds for 2023.
If you’re single, head of household or married filing separately and don’t live with your spouse at any time for the tax year, you can contribute:
The maximum amount if your income is less than $138,000 ($129,000 in 2022);
An amount that phases out as you earn more if your income is at least $138,000 but less than $153,000 (at least $129,000 but less than $144,000 in 2022);
Nothing if your income is $153,000 or higher ($144,000 or higher in 2022).
If you’re married filing jointly or you’re a qualifying widow(er), you can contribute:
The maximum amount if your income is less than $218,000 ($204,000 in 2022);
An amount that phases out as you earn more if your income is at least $218,000 but less than $228,000 (at least $204,000 but less than $214,000 in 2022);
Nothing if your income is over $228,000 ($214,000 or higher in 2022).
If you’re married filing separately and you lived with your spouse at any point during the tax year, you can contribute:
A reduced amount if your income is under $10,000;
Nothing if your income is $10,000 or higher.
Your IRA contributions can’t be higher than your income for the year, so if you earn $5,000 in 2023, that’s your maximum contribution for the year.
How Much Can You Contribute to a Roth IRA
Tax-filing status
2023 income
Maximum contribution
Single, head of household or married filing separately
Under $138,000
$6,500 ($7,500 if 50 or older)
Single, head of household or married filing separately
$138,000-$152,999
Reduced amount
Single, head of household or married filing separately
Over $153,000
Not eligible
Married filing jointly or qualifying widow(er)
Under $218,000
$6,500 for each individual ($7,500 if 50 or older)
Married filing jointly or qualifying widow(er)
$218,000-$227,999
Reduced amount
Married filing jointly or qualifying widow(er)
Over $228,000
Not eligible
Married filing separately (lived w/ spouse at some point in tax year)
Under $10,000
Reduced amount
Married filing separately (lived w/ spouse at some point in tax year)
Over $10,000
Not eligible
Pro Tip
Working on last year’s taxes? The 2021 income limits are slightly lower to be able to contribute to a Roth. Use this IRS chart to determine your eligibility.
Roth IRA Age Limits: Do You Ever Have to Stop Contributing?
You can open a Roth IRA at any age, so long as you have taxable income. Then you can keep contributing to it forever — as in for the rest of your life — as long as you’re earning income because Roth IRAs do not have an age limit.
You also never have to take money out of your Roth IRA because there are no required minimum distributions, or RMDs, which is IRS speak for mandatory withdrawals. That means you can leave it to a beneficiary who can make tax-free withdrawals on it after you die.
But if you withdraw your Roth IRA earnings early, one important thing to know is that you’ll often pay taxes plus a 10% penalty. Early means before before the account is 5 years old and before you reach age 59-1/2. You can, however, withdraw your contributions at any time. And you may be able to avoid early withdrawal penalties in some circumstances, such as if you’re using the money for a home purchase or certain medical expenses.
3 Clever Ways to Get Around Roth IRA Limits
Now that you know the Roth IRA limits for 2022, you also need to know that there are some completely legit ways to get around them. Here are three ways that won’t get you in trouble with the IRS.
1. Increase Your 401(k) Contributions
Unlike a Roth IRA, a 401(k) plan is funded with pre-tax dollars, so it lowers your taxable income. So if you earn too much to fund a Roth IRA but have access to a 401(k) or another employer-sponsored plan, reducing your taxable income through additional contributions could be an option.
If you’re under age 50, you can contribute up to $22,500 to a 401(k) in 2023 ($20,500 in 2022). If you’re 50 or older, the maximum contribution is $30,000 ($27,000 in 2022).
2. Open an IRA for a Non-Working Spouse
Remember how we said you need to earn income to open an IRA? Well, there’s an exception.
If you have a spouse who doesn’t work, you can open an IRA — Roth or traditional — for them and contribute the maximum amount allowed for their age, provided that you have income equal to the amount you’re putting in your spouse’s IRA and your own IRA.
The regular IRA limits apply to spousal IRAs: You can’t contribute more than $6,500 in 2023 or $6,000 in 2022 if your spouse is under 50. If your spouse is 50 or older, you contribute an extra $1,000 in both 2022 and 2023. If you’re married filing jointly with an income over $228,000, you’re not eligible to fund a Roth IRA for you or your spouse, though you can still fund traditional IRAs for both of you.
3. Open a Backdoor Roth IRA
There’s a big loophole in those Roth IRA income limits we just told you about: If you make too much to open a Roth IRA, you can open a backdoor Roth IRA, which is basically where you open a traditional IRA and convert it to a Roth IRA.
There are a lot of complicated rules and tax consequences when you open a backdoor Roth IRA, so be sure to talk to a financial adviser if you’re considering one.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]
We all make mistakes in planning for our golden years. But which are the worst, which are the most common, and which ones do we all need to watch out for?
Financial planners have weighed in with the top 10 they see among clients. It’s emerged in a survey conducted by money managers Natixis and just released. And it’s a terrific checklist for anyone who wants to see how they’re doing, and what they need to change.
Opinions expressed by Entrepreneur contributors are their own.
A nonqualified deferred compensation (NQDC) plan is a great way for employers to attract and retain key talent. It also represents a potentially massive tax savings opportunity for highly compensated employees. There is a lot that you need to know about these plans before deciding to participate in one, however. So, let’s get into the basics.
A nonqualified deferred compensation (NQDC) plan allows employees to earn their pay, potential bonuses and other forms of compensation in one year but receive those earnings in a future year. This also defers the income tax on the compensation. It helps provide income for the future, and there’s a possibility for a reduced amount of income tax payable if the employee is in a lower tax bracket at the time of the deferred payment.
It’s worth noting that tax law requires these NQDC plans to be in writing. There needs to be documentation about the amount being paid, the payment schedule and what the future triggering event will be for compensation to be paid out. There also needs to be an assertion from the employee of their intent to defer the compensation beyond the year.
A NQDC plan is a contractual fringe benefit often included as part of an overall compensation package for key executives. It can serve as an important supplement to traditional retirement savings tools, such as individual retirement accounts — IRA and 401(k) plans.
Like a 401(k), you can defer compensation into the plan, defer taxes on any earnings until you make withdrawals in the future and designate beneficiaries. Unlike a 401(k) plan or traditional IRA, there are no contribution limits for an NQDC — although your employer can set its own limits. Therefore, you can potentially defer up to all your annual bonuses to supplement your retirement. We have seen companies allow you to defer as much as 25-50% of your base salary as well.
Employers: Take note
NQDC plans carry some benefits for employers as well. The plans are a low-cost endeavor. After initial legal and accounting fees, there are no annual payments required. There are no unnecessary filings with government agencies like the Internal Revenue Service.
Since the plans are not qualified, they are not covered under the Employee Retirement Income Security Act (ERISA). This provides a greater amount of flexibility for both employers and employees. Employers can offer NQDC plans to select executives and employees who would benefit the most from them.
Companies can customize plans toward valued members of their workforce, creating incentives for these employees to remain with the company. For example, an employee’s deferred benefits could be rendered forfeit if said employee decides to leave the company before retirement. We call this strategy a “golden handcuffs” approach.
For highly compensated employees, social security and 401(k) can only replace so much of your income in retirement. You could potentially build up the bulk of your retirement savings with your NQDC plan. There’s also the bonus of reducing your annual taxable income by deferring your compensation. This brings into play the idea of being in a lower tax bracket, decreasing the amount of taxes you would need to pay. Many employers even incentivize this, offering a match of some kind.
Timing of payment
The timing of when you take NQDC distributions is important since you’ll need to project your potential cash flow needs and tax liabilities far into the future.
Deferred compensation plans require you to make an upfront election of when you will receive the funds. For example, you might time the payments to come at retirement or when a child is entering college. In addition, the funds could come all at once or in a series of payments. There is tremendous flexibility often in these plans.
Taking a lump-sum payment gives you immediate access to your money upon the distributable event (often retirement or separation of service). While you will be free to invest or spend the money as you wish, you will owe regular income taxes on the entire lump sum and lose the benefit of tax-deferred compounding. If you elect to take the money in installments, the remainder can continue to grow tax-deferred, and you’ll spread out your tax bill over several years.
An NQDC plan does come with some risks. When you participate in a qualified plan, your assets are segregated from company assets, and 100% of your contributions belong to you. Because a Section 409A plan is nonqualified, your assets are tied to your employer’s general assets. In case of bankruptcy, employees with deferrals become unsecured creditors of the company and must line up behind secured creditors in the hopes of getting paid.
Thus, you should consider how much of your wealth — including salary, bonus, stock options and restricted stock — is already tied to the future health and success of one company. Adding deferred compensation exposure may cause you to take on more risk than is appropriate for your personal situation.
Before you choose to participate in an NQDC plan, you should speak with both your financial advisor and your tax professional. You really want to model out how and when you will receive these disbursements. Ideally, you are planning with enough foresight that you will offset this income tax event in retirement with withdrawals from a brokerage account or a Roth IRA or 401(k). You will also want to pay attention to the impact of high income with the taxation of Medicare Part B — if you think there are a lot of moving parts here, you are right! When executed properly, you can truly develop a unique plan that is customized to your exact living situation and future goals.
Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
Women are more conscientious about joining their employer’s 401(k) plans. Fewer men than women join unless there’s automatic enrollment. The biggest difference is in the $50,000 to $75,000 income range, where 81% of women keep 401(k) accounts compared with only 67% of men.
Weirdly, however, men tend to have more retirement savings than women. The average man has $93,500 in his 401(k) account, the average woman $70,000.
How can that be? It’s because men tend to earn more money and because men set aside more of their paychecks for retirement than women do.
So, how can women close the gap in retirement savings? We have seven strategies for you to follow.
What Women Are Up Against
Like we said, life isn’t fair. Here are three reasons why women’s retirement savings tend to lag behind men’s:
Working women are more likely than men to interrupt their careers to take care of family members, according to the U.S. Department of Labor. They end up with a work gap, missing potentially years of employment when they could have been contributing toward their retirement.
Women are more likely to work in part-time jobs that don’t qualify for a retirement plan, the Labor Department says.
Here are seven strategies women can use to save more for retirement.
1. Get Started, Pronto
If you aren’t saving for retirement, start ASAP. The earlier you start, the better off you’ll be, with your money growing over time thanks to the magic of compound interest.
If you are saving (good for you!), take a few minutes to check your progress. Are you saving enough for your anticipated needs?
2. Save Enough to Get Your Company Match
Financial advisers recommend that, at the very least, you save enough in your 401(k) to get the full employer match that’s being offered to you. If you’re not doing that, you’re basically passing up free money.
One of the best things about a 401(k) plan is that many employers will match your contribution up to a point. It’s part of your compensation package.
Say your employer offers to match 100% of your 401(k) contributions up to 6% of your income. If you make $50,000 per year and max out the employer match, you’d put in $3,000 and your employer would kick in another $3,000, doubling your savings.
3. Try Saving Even More
Once you’ve done that, see if you can go beyond the employer match. Lots of people do.
If you’re reading this and suddenly finding that you’re contributing a below-average amount to your retirement plan, you should strongly consider kicking it up a notch if you can.
Not sure how to start? The U.S. Treasury offers the myRA account, which you can think of as a starter retirement account before upgrading to a Roth IRA.
There are also investing apps that will give you free stocks to get started. Robinhood, for example, will give you free stock worth between $2.50 and $200 just for downloading its free app and funding your account.
5. Avoid Dipping Into Your Retirement Savings
Experts strongly recommend that you not dip into your retirement savings before you retire. You’ll pay heavy financial penalties, and you could put a serious dent in your retirement plans down the line.
6. Prepare to Work As Long As You Can
Another strategy for women: Prepare yourself for the likelihood that retirement may not happen until you’re well past 65.
Maintain your ability to continue working past age 65. Keep your job skills up to date or learn new ones. Many employers, community colleges and nonprofits offer classes in the latest technologies and careers.
By taking care of your career, you’ll have a better chance of staying comfortable and secure when it’s finally time to retire.
7. Wait to Take Social Security If You Can
When your 62nd birthday approaches, you’ll have a big decision to make: Should you take Social Security at 62 and accept lower benefits? Or should you delay Social Security to get a higher benefit amount?
The answer to whether taking Social Security at 62 is the right move for you depends on several factors: your life expectancy, whether you’re retiring early and your overall financial situation. By taking Social Security at 62 instead of at full retirement age, you’ll reduce your monthly benefit by 30% for life.
However, if you’re feeling relatively healthy and you wait until you’re 70 to start claiming your Social Security benefits, you’ll end up getting checks that are nearly 80% larger.
In Case of Divorce
If you get divorced, are you entitled to a portion of your spouse’s retirement benefit?
Possibly. In most private-sector retirement plans, you would do this via a qualified domestic relations order (QDRO) issued by the court, according to the U.S. Department of Labor. You or your attorney should consult your spouse’s plan administrator to determine what requirements that order would have to meet.
You may be able to take Social Security based on your ex-spouse’s benefits instead of your own, even if you divorced decades ago. However, people with a long employment record will typically qualify for a bigger benefit based on their own earnings instead of a spouse’s. Social Security will give you the bigger benefit, but not both.
The maximum benefit you can get based on the record of a spouse — whether you’re currently married or divorced — is 50% of their full retirement age benefit. Full retirement age is the age at which you qualify for 100% of your benefit. It’s 66 or 67, depending on when you were born.
It’s important to know these things.
Life isn’t always fair, so you’ve got to look out for yourself.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.
Consumers are taking the plunge into solo traveling, despite the cost of traveling surging in recent months due to higher inflation and interest rates.
Due – Due
Traveling alone during retirement is nothing new, and millions of retirees and more mature adults are enjoying the excitement of experiencing a new country or culture by themselves.
Most recent statistics indicate that 16% of people in the United States have taken a vacation by themselves, that’s more than 53 million Americans embarking on a solo adventure. More surprisingly an additional 83 million of them are planning a solo trip in the coming months and years even as the cost burden weighs on their budgets.
Though it tends to be harder, and more expensive to travel alone, many consumers are finding it easier to do so, as it allows them better freedom and flexibility to visit destinations and experiences they’ve always dreamt of.
With droves of Americans taking to the skies again amid the travel rebound, older and more mature adults are also now tapping into the idea of solo travel, even if it requires some meticulous planning.
The most recent data from 2016 suggest that out of the 32 million Americans older than 65 years that live alone, more than 10% of them tend to travel alone or embark on a solo adventure at least once during their retirement.
Going back even further to 2014 we see that travelers aged 45 years and up were highly satisfied with their solo experience, and a majority – 81% – said they were already planning on taking another single-person adventure in the 12 months that followed after the survey was conducted by The American Association of Retired Persons (AARP).
David Stewart, CEO of travel aggregator Guide to Europe tells that, “consumers shouldn’t feel restricted to travel because of their age, we see all sorts of people taking advantage of solo travel these days, regardless of their age and that shows to us as a team how we can make a difference in other people’s lives through the services we provide them.”
Age is indeed just a number, but that number does come with a lot of challenges and risks if you end up booking the wrong holiday or not doing proper research. To make matters easier, here’s a look at some of the mistakes many retirees come face-to-face with when they plan for a solo trip.
Mistakes To Avoid As A Solo Retired Traveler
1. Not knowing your physical limitations
At any given age or period in your life, you have encountered an activity that has pushed you to your limits. Whether you’re a young 20-something, or recently stepped out of the workforce and into retirement – we all have our limits.
As a retiree that looks to embark on a solo trip during your golden years, it’s important to understand what your physical limitations are, and how you can plan a trip that accommodates your needs.
Before you start planning, make sure to visit your doctor to get a professional opinion on the state of your health. You might feel as if you’re in the best shape you’ve ever been, but it’s best to be prepared and know what you can and cannot do while you’re on holiday.
2. Not effectively planning
Traveling comes with a lot of planning, from choosing a destination, booking tickets, deciding on accommodation options, and looking for fun, yet applicable activities to do within your means.
If you ask any travel expert or even someone who often travels alone, they will tell of the benefits that come with planning well ahead, and there’s good reasoning behind it as well.
For starters, last-minute travel deals are also not so readily available, and for someone at your age, you want to make sure you have everything sorted before arriving. Once you know where you want to go, you can consider how you will be getting around, or if the area is safe enough to travel alone as a foreigner.
Additionally, you need to think of things such as clinics and hospitals in case of a medical emergency, or if you need a prescription refilled while abroad. You may need to renew your passport or apply for one if you’re a first-time traveler. This all takes time and requires some upfront money to cover the costs so it’s best to start planning early.
3. Ignoring budget-friendly group options
While you may be thinking of taking a solo trip, often due to financial or personal limitations, you will be required to make some adjustments. Before you completely cancel your trip or postpone it until a later time, do a bit of research if there are any budget-friendly group travel options available in your area.
Group travel packages are often specifically designed and planned around senior citizens, to ensure they can get the most out of their experience and the best bang for their buck. On top of this, depending on where travel groups may go, you will be able to meet similar like-minded people who share the same wanderlust excitement as you do.
Travel agents and several travel aggregators have travel groups that visit some exciting and interesting places, both abroad and back home as well.
4. Skipping the travel insurance
The chances of you ever using your travel insurance are somewhat unlikely, but you can never be too safe, especially when you’re traveling by yourself. Travel insurance is a simple and secure way to protect your belongings, and help cover unforeseen costs such as a canceled flight.
In some more severe instances, travel insurance will also help assist in case of a medical emergency, or if you end up in a hospital in a foreign country. You may also need insurance to help you in case you lose your passport, or you require a repatriation flight back home.
There are a lot of reasons why travel insurance is important, and it’s best to follow up with your health insurance provider, or credit card company about the type of coverage they may already be offering in your current policy, or if you will be required to take out a temporary policy while overseas.
5. Choosing the wrong destination
Once you have some idea of where you want to go, you will need to start researching whether they cater to your needs and meet all your requirements.
Most destinations these days cater to a wide range of travelers from all age groups, and while this has given travelers the chance to freely roam, there’s always that one thing that could potentially become an inconvenience.
If you’re planning to visit a remote destination, consider how you will be getting there, either by plane, train, or boat, and how long it will take you to get there. Once you’re there, how will you be getting around to seeing the sites? Do the locals speak English, and will they understand you if you need assistance?
Make sure to choose a destination that’s closely related to where you’re from, as this will not only help you get around easier but also make the trip more enjoyable.
6. Going all out from the start
Now that you’re retired, you might be looking to squeeze in as much traveling as possible. While this is not completely impossible, it’s easy to overdo yourself on the first trip a bit too much, which can often leave a bad taste in your mouth.
As you start to plan your solo trip, see how you can find a balance between travel and relaxation, without overindulging in the entire experience. Although you want to see as much as possible and visit as many places as possible, make a list of the most important things, and narrow it down to a few options.
Take enough time to make sure you are in the right shape to travel alone, not only for your safety, but also for things such as carrying your luggage, standing in long queues at the airport, or having to walk long distances.
7. Breaking the bank
With travel costs up across the board, from airline tickets to lodging and even car rental, you will need to have a travel budget at hand to make sure you don’t spend all of your savings on a single trip.
Once you know where you want to go, you can set up a budget that includes transportation, accommodation, car rental, and food, among others. Additionally, you will need to budget for activities and excursions as well, such as entry to parks and museums.
Luckily for retirees, there are plenty of senior travel package deals and promotions available year-round. More so, if you have a travel rewards card, you can make use of the senior citizen benefits, or look for deals that are specifically tailored to your age group.
8. Not properly making use of technology
Nowadays it’s possible to book an entire trip in one single click. What’s even more impressive is the fact that you can plan, book, and pay for a holiday using one simple mobile application.
Digital tools and technology have brought the world closer to us, and with it, it’s also made it a lot easier for us to travel more conveniently.
Before you leave, read up about the latest travel apps you can use while abroad, or ask a younger family member to assist you with the app. Additionally, you can play around with the app a bit, to make sure you are comfortable enough to use it without the assistance of others.
Technology has done incredible things for us, and not properly utilizing it will result in costly and inconvenient mistakes.
9. Assuming things are still like they used to be
Often we have a certain level of expectation before we embark on an exotic holiday. And while things may have been a certain way back when you were younger, it’s unlikely that things are still the same today.
There is a lot that can change through the years, and you will be able to notice it within your retirement community as well. When you travel abroad, it’s best to manage your expectations, do a bit of reading, or ask around in your circles if anyone has recently visited the place you want to go.
If you have an idea of what you might encounter, it’s best to consider that through the years things may have changed a bit, regardless of the current state of affairs.
10. Not doing it sooner
A lot of mature adults will often leave traveling until retirement, simply because they will have more time and money to do so once they leave the workforce. More so, single retirees will often not travel solo because they feel restricted by their health, or not having someone to do it with.
Although these may be valid reasons to travel later, rather than sooner, it’s best to start planning and ensure you get to experience as much as you possibly can.
Retirement allows you more freedom and flexibility to travel as frequently as you want, and for as long as you please. This is the best time to enjoy the simpler luxuries of life and make the most of your golden years.
The bottom line
Traveling solo has its perks, but it does come with some considerations at the same time. For retirees who are willing to plunge into solo travel, making sure they are up to date with all the latest insights and trends in terms of traveling will help them plan a memorable vacation.
For solo travelers, it’s best to make sure you have an idea of where you want to go, how much it will cost you, and how you will be exploring the area once you’re there. Additionally, you want to make sure you have accommodation sorted before you leave and that you have communicated with friends and family back home about your travel plans.
If you make time to properly plan, your holiday will be more relaxing, and enjoyable, while you indulge in the simple pleasures life has to offer you at the age of retirement.
You’ve spent decades in the workforce earning a living, your schedule dictated by the demands of the job. All the while, you’ve been steadily adding to your savings so that one day you could get to this point: Retirement.
You finally have time to cross items off your bucket list — or simply catch a midweek matinee movie.
The possibilities are endless.
Life may feel more relaxed and carefree, but financial responsibilities remain front and center. In fact, now’s the time you might need to be even more diligent about budgeting your money.
Living on What You Have Saved
When you say goodbye to your 9-to-5, you also say goodbye to your regular paycheck.
You’ll rely on Social Security benefits, funds in your retirement accounts and any additional income, like pensions, to cover your expenses.
Sticking to a budget is vital so your retirement savings last. That money you’ve squirreled away in your working years has to stretch for decades. Remember, life on a fixed income means there are no bonuses, overtime or promotions to increase your cash flow.
One popular rule of thumb is to have 25 times your average annual expenses saved up.
But how much money you need in retirement depends on many factors, like your age, where you live and the retirement lifestyle you want to enjoy.
If you intend to retire early at 60, rent a highrise in New York City and travel every couple of months, you’ll need considerably more money than a retiree who leaves the workforce at 70, lives in a paid-off home in rural North Dakota and stays home to spend time with family.
There are also a lot of unknowns in retirement — like what medical conditions you could develop and exactly how many years you’ll need your funds to stretch.
That’s why it’s important to have robust retirement savings and be cognizant of your spending in your golden years.
How to Make the Most of Your Nest Egg
To make your savings last, you’ve got to be prudent about how much you withdraw each year.
“The gold standard has always been 4%, but new research has revealed a different number,” said Chuck Czajka, a certified estate planner and owner of Macro Money Concepts in Stuart, Florida.
He said withdrawing 3% a year instead gives you a 90% success rate to last through a 25-year retirement.
Keep in mind, once you’ve determined how much you can withdraw from your retirement plans each year, you’ll want to divide that amount by 12 to come up with how much to withdraw each month.
Czajka recommends withdrawing money from your retirement accounts on a monthly basis rather than taking out a year’s worth of expenses.
Meeting with a financial adviser can help you come up with a personalized plan to fit your individual situation and financial goals.
“As people approach retirement, they should work with a retirement professional to determine their expected retirement income,” said Lisa Bamburg, a registered investment adviser and owner of Insurance Advantage in Jacksonville, Arkansas.
Factoring in Income Beyond Your Savings
In addition to the money you’ve saved in your 401(k), individual retirement account (IRA) or other investment accounts, a portion of your retirement finances will come from Social Security benefits.
You can start collecting Social Security benefits as early as age 62, but you’ll receive less money per month than if you waited until full retirement age — 66 or 67, depending on when you were born.
If you delay claiming benefits past your full retirement age, you’ll receive even more money each month. However, there’s no additional increase once you hit age 70.
Pro Tip
This calculator from the Social Security Administration gives you a rough idea of your retirement benefits. This retirement estimator is more accurate but requires plugging in your personal info.
In addition to Social Security, you might have other sources of retirement income, like a pension plan from a former employer or an annuity.
A report from the National Institute on Retirement Security found that many retirees don’t have a great diversity in their retirement income, though additional income sources provide for a more secure retirement.
The report found less than 7% of older Americans have retirement income that’s made up of a combination of Social Security, a pension plan and a retirement contribution plan like a 401(k). About 40% rely on Social Security alone.
“Social Security benefits typically are not the equivalent of what it takes for most people to maintain their standard of living,” Bamburg said.
The Social Security Administration states its retirement benefits only replace about 40% of pre-retirement income for people with average wages — more for low-income workers and less for those in higher income brackets.
How to Create a Retirement Budget
Once you determine what your retirement income will be, it’s time to make your retirement budget.
If you’ve already been budgeting, you’re off to a great start, though your new retirement budget will likely differ from that of your working days.
Take Stock of Your Essential Expenses in Retirement
First, you’ve got to get an overall look at your current spending.
If you don’t already have a budget or track your spending, pull out the past several months of bank or credit card statements. Dig up old receipts if you tend to pay in cash.
Reviewing the past three months will help you figure out your average monthly expenses, but an even deeper dive — looking at the last six to 12 months — will give you a more accurate picture and will reveal things like your annual car insurance bill and holiday spending.
Group your spending into different categories to see where your money’s going. You’ll have fixed monthly expenses, like your mortgage, where the cost stays the same each month.
Other must-have expenses, like groceries or utilities, will vary. For those, you should estimate your average monthly spend.
Account for Changes
After leaving the workforce, you’ll notice some differences in your spending plan and budgeting process.
You’ll no longer have to pay commuting costs for downtown parking near the office, gas to and from work or pricey lunches with coworkers. Your monthly retirement contributions will be a thing of the past.
However, not everything will be budget cuts. You’ll have to account for new retirement expenses, like health insurance premiums your employer probably covered.
If you’re 65, you can get health insurance through Medicare, but it’s likely you’ll face increased out-of-pocket costs for health care as you age.
After all, Medicare doesn’t cover all your health care needs. You’ll likely need to pay for dental, vision and hearing health care costs. You’ll also need to consider monthly premiums for Medicare Part B and prescription drug coverage, also known as Medicare Part D.
You should also factor taxes into your retirement budget. Aside from paying yearly property taxes if you own a home, you’ll also owe income tax on withdrawals from traditional IRAs and 401(k)s.
Your taxes will vary with your income. Research the tax rates in your area and compare them to your income level so you won’t be surprised when tax bills arrive. Getting tax advice from a financial professional is another smart move.
Housing costs are also important. Your home might be paid off, but budgeting for ongoing home repairs is a good idea. Those unexpected expenses add up quickly.
And of course, now that you have an influx in free time, you can pursue the things you’ve always wanted to do — which means additional expenses in retirement.
Make Room for Fun Things in Your Retirement Budget
A big part of retirement planning is determining what type of lifestyle you want to have when you’re no longer working 40 hours a week.
Do you want to travel? Spend more time with your grandkids? Explore a new hobby? After you’ve covered your essential expenses, how you spend what’s left in your retirement budget is totally up to you.
Don’t forget to include run-of-the-mill discretionary expenses in your retirement plan, like cable, gym memberships, magazine subscriptions and dining out. It won’t all be cruise ships and Broadway plays.
If you’re married, be sure to share your retirement budget with your partner, so you’re both on the same page about how you’ll spend your time and money.
Adjusting Expectations to Reality
As you create your monthly budget, you may discover you have less income than you thought you’d have in retirement. That doesn’t mean you have to live out the rest of your life kicking yourself for not saving more. You have a few options to get by.
Take another look at your living expenses. Are there any ways you can cut costs? Slash your food spending with these tips to save money on eating in and dining out. Consider downsizing to a smaller home or getting a roommate to save money on housing.
When it comes to your discretionary spending, look for ways to enjoy a more frugal retirement. Take advantage of senior discounts. Check out free activities at your local community center. Find ways to save money on traveling.
Although retirement means leaving your working days behind, you may find it necessary to pick up a side gig or part-time job to supplement your income. Seek out opportunities that match your interests so it doesn’t feel like work.
Don’t forget to enjoy this new stage of life. You worked hard to retire — you deserve it.
Nicole Dow is a former senior writer at The Penny Hoarder.
Rachel Christian, a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder, also contributed.
Affording dental work can be tough if you’re an older American on Medicare.
That’s because Original Medicare — which covers a majority of beneficiaries — doesn’t include routine dental care.
The Centers for Medicare & Medicaid Services announced plans to begin covering limited dental services starting January 2023. But the scope is narrow: Dental work must be linked to a covered medical procedure, such as before an organ transplant, to qualify for coverage.
For now, older adults are mostly on the hook when it comes to paying for their own oral health care.
Here are seven ways to get free or reduced dental care. We’ll also explain what limited dental benefits Medicare coverage provides, along with other options like private insurers and Medicaid.
7 Places To Get Cheap or Free Dental Care for Seniors
Medicare beneficiaries who use dental services spent an average of $874 a year out-of-pocket, according to an analysis by the Kaiser Family Foundation.
That’s a lot of money, especially if you’re on a fixed income.
Here are a few tips and tricks to get free dental work and save big on oral health.
1. The Dental Lifeline Network
This program by the American Dental Association offers free, comprehensive dental treatment to specific groups, including people ages 65 and older.
You can use this tool on the Dental Lifeline Network website to learn about the specific program details in your state.
Heads up: Due to long wait lists, several states and counties are no longer accepting new applications for the Dental Lifeline Network program. When we did a quick search, Nevada and Wisconsin weren’t accepting new applications.
2. Community Health Clinics
Federally funded community health clinics provide reduced-cost or free dental care services to people with low incomes.
Many operate on a sliding scale system while others offer flexible payment plans.
Wait lists can be long, so it’s important to reach out to your local clinic early.
Some dental schools offer low-cost cleanings and other routine care to members of the community.
Most of these teaching facilities have clinics that give dentists-in-training an opportunity to practice their skills while providing low-cost dental care to the public.
You can search for dental schools and programs in your area by visiting the American Dental Association website.
There’s no guarantee that a dental program in your area currently offers free or reduced dental care. You’ll need to contact each program individually to see what’s available.
When you call, make sure to ask about any fees up front.
4. NeedyMeds.com
This website offers a comprehensive list of dental offices with sliding scale payment options, community health center locations and dental school clinics.
It does a great job breaking down requirements and eligibility (if any) for services in your area, and provides contact information for each service.
It might be difficult to ask for help, but being honest with your dentist about your financial situation can help.
Your dentist may be able to offer a less expensive treatment, help you set up a payment plan or provide a sliding scale payment option.
Ask if you can receive a discount for referring a friend. Or, see if it’s possible to knock off a few bucks in exchange for a positive online review of the dentist office.
6. Sign Up for a Dental Savings Plan
Dental savings plans aren’t dental insurance, but they may still be able to save you money.
Here’s how it works.
With a dental savings plan, you pay an annual fee, then get a 10% to 60% discount on most dental services such as exams, cleanings, fillings, root canals and crowns.
The plan contracts with dentists who agree to reduce their fees, then you pay the participating dentist directly using your discount.
You’ll still pay out of pocket for those services, but the idea is that you won’t pay as much as you would without the plan.
But let’s be clear: Dental discount plans aren’t free. The average cost for plans in Orlando, Florida, for example, ranged between $135 to $170 a year.
You can visit DentalPlans to find a plan in your area.
7. Shop Around
Dentists can charge widely different prices for the same exact procedure.
When it’s coming out of your pocket, it pays to shop around.
You can find average prices in your area by using FAIR Health, a national nonprofit organization. The site lets you search by specific procedures, so you get the average cost for a root canal or teeth cleanings in your area.
Armed with knowledge, call around to different dentist offices for quotes. Ask about senior discounts.
You can also look for discounted dental care on sites like Groupon.
A quick search on Groupon for dental services in Houston, Texas, showed numerous X-ray, exam and cleaning packages for $25 to $50. One office even offered $700 toward dental implants for just $50!
If you reside in a high cost-of-living area, driving to a less expensive area is another smart way to find low-cost dental care.
Getty Images
Does Medicare Cover Dental Care?
Yes and no.
Original Medicare doesn’t provide coverage for routine dental, vision or hearing benefits.
Original Medicare will only cover dental work if it’s deemed medically necessary, i.e. you were hospitalized after a traumatic injury that also affected your jaw, teeth or mouth.
Starting Jan. 1, Medicare will begin covering the following dental procedures:
Reconstruction of a ridge when performed at the same time as the surgical removal of a tumor.
Stabilization or immobilization of teeth when done in connection with the reduction of a jaw fracture.
Dental splints when used in conjunction with a medically necessary treatment.
Here are the other dental services covered by Medicare Part B:
Dental services that are critical to a larger procedure like facial reconstruction after an accident.
Tooth extraction that is needed to prepare for radiation treatment.
Oral exams and treatments that are done to prepare for a kidney transplant, heart valve replacement or organ transplant procedures.
So if you’re looking for standard dental care like teeth cleaning, X-rays, fillings, extractions, dentures and more — the cost comes out of your pocket.
Medicare Advantage
Medicare Advantage plans are administered by private insurance companies. They must provide the same basic coverage as Original Medicare, but plans may offer additional benefits, such as dental.
About 94% of private Medicare Advantage plans provide some dental coverage, but the amount of coverage varies by plan.
Nearly all Medicare Advantage plans that include dental offer coverage for oral exams, cleanings and X-rays, according to the Kaiser Family Foundation.
But benefits for more advanced dental work like root canals, implants and dentures can carry substantial copays, depending on the plan.
Medicare Advantage plans almost always impose restrictions, including annual dollar caps and how often you can get certain benefits, such as dental implants.
The average annual limit on dental benefits among Medicare Advantage plans that offer more extensive benefits was about $1,300 in 2021, according to KFF.
If you’re enrolled in a Medicare Advantage plan, it’s important to check the plan’s summary of benefits or evidence of coverage to see exactly what dental work is covered. It can vary widely from plan to plan.
Other Dental Insurance for Seniors
About half of all Medicare beneficiaries — 47% — did not have any form of dental coverage in 2019, according to the Kaiser Family Foundation.
Besides Medicare Advantage plans, other sources of dental coverage for seniors include Medicaid and private plans, such as employer-sponsored retiree plans and individually purchased dental plans.
Private Dental Insurance for Seniors
A standalone dental policy for people 65 and older is typically $20 to $50 a month, according to AARP. You can expect an annual deductible of $50 to $100 with these policies.
Dental insurance plans usually cover checkups and cleanings 100% but you will probably owe 20% to 50% for other services, such as tooth extractions or dentures.
The devil is in the details with private dental plans: It’s important to shop around and carefully compare benefits to make sure you’re getting the best deal.
Here are a few other things to keep in mind about private dental insurance plans:
You can’t enroll in a dental plan through the federal ACA Marketplace if you’re already enrolled in Medicare.
Private dental policies usually don’t charge higher monthly premiums if you’re over 65 or in poor health.
An insurance company may require you to undergo a waiting period before you can get expensive procedures.
Some plans won’t cover pre-existing dental conditions you had before enrolling in coverage.
You may be restricted to an in-network dentist, so check to see if your dentist is on the list.
Medicaid
About one in five Medicare beneficiaries is also enrolled in Medicaid, sometimes referred to as being “dual enrolled.”
Medicare usually pays as your primary insurance when you’re dual enrolled. But if you need dental work done or even a yearly cleaning, consulting your Medicaid handbook is a smart move.
If you meet Medicaid low-income requirements in your state, you may be able to receive free or low-cost dental care for certain procedures and services.
But it’s not a guarantee. While most states provide at least some emergency dental services, only 39 states and Washington, D.C. offer limited or comprehensive dental benefits for adults, according to the National Academy of State Health Policy.
Even if your state Medicaid program includes dental, it may not pay out much. Of the 39 states with routine dental care coverage, only 25 states offer an annual expenditure cap of $1,000 or more.
Adult Medicaid recipients in Arkansas, for example, only receive annually up to $500 of dental services, and that excludes dentures and tooth extractions. So if you need a $3,000 root canal and you’re dual enrolled with Original Medicare, you can expect to pay $2,500 out of pocket in that state.
According to Medicaid’s national website, “States have flexibility to determine what dental benefits are provided…There are no minimum requirements for adult dental coverage.”
To find the Medicaid office contact information for your state, click here.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
Hey Penny Hoarders! As many of you know, we have a Community site that’s a gathering place for folks to discuss all things money. Through the support of fellow Community members, the site has helped people tackle their debt, increase their credit score and even book a dream vacation.
We’re excited to announce our Community site just got a makeover – one in which we feel provides a much more user-friendly experience. We wanted to share some things you can expect when you visit the new Community site.
What to Expect in the New Penny Hoarder Community
First up, The Penny Hoarder Community is still the place to share tips and find support on all-things money. Besides contributions from other Community members, you’ll also find our staff sharing personal stories on topics like frugal finds, money wins and fails, and more.
Earn Badges
So many badges. On the Community site, you can now earn badges for all sorts of things – creating or commenting on a post, or liking someone else’s post. Even just visiting the Community site on a regular basis. Also, the more badges you earn, the more things you’ll unlock on the Community site. Do you have what it takes to be a top contributor? You’ll not only earn the respect of your peers, but also gain access to exclusive opportunities and offers from The Penny Hoarder.
Events, Feedback and More
Badges are just the beginning. Throughout 2023, we’ll be adding more new elements to the Community site. We’ll use it as a spot to post and host regular Penny Hoarder events where we dive into pressing money topics together and let attendees connect with experts from The Penny Hoarder (and elsewhere).
Already a member of The Penny Hoarder Community? Be sure to read our post on logging in to the new site. We hope to see you there!
Will Simons is a community marketing product manager at The Penny Hoarder. Originally from Omaha, Neb., Will loves to help people get talking about bettering their finances.
We all make mistakes, and we all have regrets. That’s part of the deal when you’re a human being.
We got to wondering: What do old people regret the most, financially speaking? If they could go back in time, what would they do differently — especially when it comes to money?
A researcher at the University of Pennsylvania’s Wharton Business School recently found out. Economics professor Olivia Mitchell conducted a survey of nearly 1,800 older Americans with an average age of 72. “What’s your biggest financial regret?” she asked.
The answers may surprise you. Your average 72-year-old has regrets about how much longer they should have worked and whether they started claiming Social Security too early, among other things.
Pay attention to the 72-year-olds. Because if we know what they would do differently, then we still have time to change things before it’s too late.
Here are the top five financial regrets, along with our suggestions for how to handle them.
1. ‘I Should Have Saved More for Retirement’
Let’s start with the biggest one. An eye-opening 57% of older Americans regret that they didn’t save more for retirement during their working years.
That’s more than half! (Yes, obviously we are advanced mathematicians here at The Penny Hoarder.)
Actually, this shouldn’t come as much of a shock. Any number of studies have found that lots and lots of American families have virtually nothing saved for retirement.
Our advice here is really straightforward: Learn from your elders and start saving for retirement now. If your employer offers a 401(k) plan, sign up for it and learn how to maximize it. If that’s not an option for you, set up automatic withdrawals on payday into a Roth IRA, a type of individual retirement account. If you haven’t gotten around to this yet, the sooner the better.
If you’re already saving for retirement, dig a little deeper and sock away a little more. Even an extra $25 a week could make a huge difference over time, thanks to the magic of compound interest.
2. ‘I Should Have Bought Long-Term Care Insurance’
We know, we know. Your eyes are glazing over right now. After all, who wants to think about long-term care insurance? Boring, am I right?
The thing you should know here is 40% of older adults regret not having it. Forty percent!
Here’s why it’s important: Everyone seems to think Medicare will pay for you to stay in a nursing home in your old age. But it won’t. You’re the one who has to pay.
Long-term care insurance covers the things regular health insurance or Medicare won’t, like nursing home care, assisted living facilities, in-home medical care, in-home assistance for routine daily activities, adult day care, home modification and more.
Only about 7.5 million Americans have this insurance because, unfortunately, it can be pricy. According to the American Association for Long-Term Care Insurance, the average annual premium is $2,220 for a 55-year-old single male, $3,700 for a 55-year-old single female (it’s higher because women typically live longer) and $5,025 for a 55-year-old married couple.
So the insurance costs money. Long-term care is really pricy, though, so having this insurance can pay off.
3. ‘I Should Have Worked Longer’
Third on the list: 37% of retired Americans regret not working longer.
Once you hit your 60s, the two most useful things you can do to fund your retirement is to:
Keep working as long as you can, and;
Delay taking Social Security as long as possible. (More on that later.)
Lots of us don’t have any choice but to keep working, of course. Millions of Americans can’t afford to retire.
On the other hand, lots of us end up getting forced into retirement due to a layoff or health problems. Having trouble finding full-time work at your age? Here’s our list of 20 part-time jobs for retirees who aren’t quite ready to call it quits.
4. ‘I Should Have Invested in an Annuity’
Actually, we’re not too sure about this one. But here goes:
According to this Wharton Business School survey of nearly 1,800 older Americans, 33% of them regret not having invested in a lifetime annuity or some other product that would produce a guaranteed income for the rest of their lives.
Now, here at The Penny Hoarder, we’re not necessarily fans of annuities. Sure, guaranteed income for life sounds like a great deal, and that’s what most annuities promise. But nothing is ever as good — or as easy — as it seems.
The positives: Annuities protect you against the risk of outliving your money. No matter what, you’ll have income coming in as long as you live.
The negatives: They’re often ridiculously complex, with loads of less-than-transparent fees. You’re losing out on potentially growing your wealth because insurance companies make money on annuities by investing your cash and paying you less than if you were investing it on your own. And finally, inflation can eat away at your earnings over time.
5. ‘I Claimed Social Security too Early’
Fifth on the list: 23% of retired Americans suspect that they claimed their Social Security benefits too early.
When your 62nd birthday approaches, you’ll have a big decision to make: Should you take Social Security at 62 and accept lower benefits? Or should you delay Social Security to get a higher benefit amount?
The answer to whether taking Social Security at 62 is the right move for you depends on several factors: your life expectancy, whether you’re retiring early and your overall financial situation. By taking Social Security at 62 instead of at full retirement age, you’ll reduce your monthly benefit by 30% for life.
However, if you’re feeling relatively healthy and you wait until you’re 70 to start claiming your Social Security benefits, you’ll end up getting checks that are nearly 80% larger.
It’s a bit of a gamble either way. Just know that nearly a quarter of retired Americans wish they’d waited longer.
Here’s something you won’t regret: You’ll never regret digging into each of these topics, doing your own research and weighing all of your options before making a decision.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. And by “senior” we mean “older.”
It’s been a tough year for many retirees on fixed incomes.
Rising prices, a turbulent stock market and concerns about a possible recession are leaving many older Americans stressed about their financial future.
But it’s not all doom and gloom. There’s actually a few things to look forward to in 2023, including bigger Social Security checks and lower Medicare costs.
4 Good Things on the Horizon for Retirees in 2023
Here are four things people approaching or already in retirement can look forward to in 2023.
1. Social Security Checks Are Getting Bigger
If you’re on Social Security, you can expect your check to increase by 8.7% in January. It’s the biggest cost-of-living adjustment in four decades.
That’s equivalent to an extra $147 a month on average in your pocket.
Of course, there’s a reason for the record cost-of-living adjustment (COLA) — inflation. The price of everything from groceries to housing keeps going up, so an extra 8.7% might not seem like much.
What makes this year different is that the rising COLA won’t be eaten up by rising Medicare Part B premiums (more on that shortly).
Plus, if inflation starts to decline next year, retirees still benefit from their bumped-up Social Security checks — at least until the new COLA is calculated in October 2023.
2. Medicare Premiums Are Going Down
Medicare beneficiaries will pay less for their Part B premium next year, the first decrease in a decade.
The standard Medicare Part B premium will be $164.90 a month in 2023, down from $170.10 in 2022. The Part B deductible is also going down.
The combination of higher Social Security checks and lower Medicare Part B premiums is great news for retirees. Most years, Social Security COLAs are eaten up by rising Medicare costs. (Most retirees get their Part B premium deducted from their Social Security checks.)
That means more money in your pocket, which is welcome news during high inflation.
But the good news comes with a caveat: Next year’s small reduction in Part B premiums (down $5.20) is just a fraction of the increase retirees shouldered in 2022 — up $21.60 from 2021.
3. Retirement Account Contributions Limits Will Be Higher in 2023
Looking to retire in the next couple of years? You’ll get to enjoy increased retirement account contribution limits in 2023.
Prompted by runaway inflation, the IRS is ratcheting up 401(k) and individual retirement account (IRA) contribution limits faster than ever.
The maximum amount you can contribute to a 401(k), 403(b) and most 457 plans increases to $22,500, up from $20,500 in 2022, a record 9.8% increase.
Contributions to IRAs will jump from $6,000 in 2022 to $6,500 in 2023, an 8.3% increase.
These new limits are particularly beneficial for workers over age 50 looking to catch up on their retirement savings.
The catch-up contribution limit for 401(k) plans is rising from $6,500 to $7,500 a year for those age 50 and older.
The catch-up contribution limit for IRAs is $1,000 per year on top of your standard contribution limit.
4. Now Is a Great Time to Be a Saver
Interest rates keep rising as the Federal Reserve attempts to clamp down on inflation.
That makes it more expensive to take out a mortgage or car loan, but higher interest rates are great if you’re saving money.
Many retirees want a safe place to park their cash. Maybe you’re selling your home to downsize and don’t want to risk putting the proceeds in the stock market. Or maybe you’re taking required minimum distributions from your retirement accounts — and don’t mind earning some interest with a safe investment.
In November, interest rates hit 3.75% to 4%. There’s been talk about rates hitting 4.5% by spring. That means you could earn even more money on your cash in 2023.
Consider this: Many high-yield savings accounts are boasting interest rates of 3% and higher. In 2021, you were lucky to get 1.5%
CDs are also enjoying higher rates, especially at online financial institutions. The average rate for a one-year CD was about 1.1% at traditional banks in November 2022 and as high as 3.75% at online banks and credit unions.
Savers have another tool in their toolbox: Series I Bonds from the federal government.
I bonds are one of the safest investments you can buy. They’re indexed for inflation and the variable rate resets every six months.
On Nov. 1, the I bond rate reset to 6.89%, a decline from its record 9.62% rate. The new rate is good until May 1, 2023.
The overall rate is down, but there’s a silver lining. On Nov. 1, the Treasury Department announced a new fixed rate of 0.4%, the first time it’s been over 0% since May 2020.
If you buy an I bond from the U.S. Treasury Department between now and the end of April 2023, you can lock in that 0.4% fixed rate over the life of your bond — and it will be calculated in addition to whatever the variable inflation rate is in the future.
I bonds can be a solid way for retirees to protect their cash against inflation. You can purchase up to $10,000 of I bonds each calendar year.
You have to hold them for at least a year, and you’ll lose three months worth of interest if you cash out your I bonds one to five years after purchase.
Bottom Line
High inflation has been challenging for many retirees in 2022, but there’s good news on the horizon.
If you’re trying to protect your nest egg against rising costs, it makes sense to speak with a financial adviser or other professional who can help you create a personalized strategy.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
The old standby that people retire when they turn 65 years of age no longer holds true. For one reason or another, people are hanging up their work boots well before they reach that age when Medicare kicks in.
What is the problem then? The problem is when you quit working, you gave up health benefits from your employer. But because you have not yet reached the age of 65, you are too young to qualify for Medicare and you need insurance to cover your medical costs until you hit 65. Finding health insurance for early retirees is job No. 1.
It is possible that you have been forced into retirement, and your need for health insurance coverage is even more dire because you may need it quickly. On the flip side of this, you may have been offered an early retirement package that includes health care. Consider yourself lucky if this is the case.
Other Coverage Scenarios
There are standard answers to the question of how early retirees can get medical coverage. If your spouse or partner has medical insurance, you can move your coverage needs to that policy. This is the best possible scenario for many people but not a reality for single folks or those whose partners don’t work or do not have insurance from a job. They may have been depending on you for their own health insurance needs.
Another option is to extend your employer’s insurance benefits through COBRA for 18 months, although that is expensive.
The cost of COBRA averages from $400 to $700 per person per month. If you are going to depend on COBRA to cover health care for your family, you must figure your costs based on the number of people the coverage is designed to protect. More on that is in the COBRA section below.
4 Options for Health Insurance for Early Retirees
Health benefits are a big consideration when you leave a job and this is especially true of older Americans who likely need more health care. It will take some work by you to figure out the best option for you and your wallet.
The following information about each option can point you in the right direction.
1. Don’t Retire Completely
“Retire’’ means different things to different people. You may be interested in accepting a part-time job that offers benefits that include medical insurance.
According to the rules of the Affordable Care Act, companies of a certain size must offer their employees health coverage if they work 30 hours a week or more. But some employers who depend on part-time workers who work fewer than 30 hours a week actually trumpet the fact that they offer part-timers health benefits.
Costco and United Parcel Service are among the largest places that offer health insurance coverage to part-time employees.
2. Get Private Health Insurance Coverage
You certainly can get health insurance through private insurers on your own. Such policies often provide less coverage than more standard insurance policies you would get through the ACA, but they would also be much less expensive.
Short-term health insurance can be a bridge until Medicare kicks in because you do not want to have a major health crisis and have no insurance to help with the high costs of medical care. A short-term health insurance policy can provide that kind of coverage to benefit your mental health and reduce anxiety.
If you are several years away from age 65 when your Medicare coverage kicks in, you can buy long-term private health insurance. The cost will depend on your age, your location, your finances (income and expenses), the number of family members you are going to insure, and your health history.
However, it is possible to get an estimated cost of your coverage at the website of nearly every private health insurance company. A bit of research on your own will save you time and allow you to make decisions before you consult with a private health insurer or a health insurance broker.
3. Get COBRA Coverage
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act and was designed for people exactly in your situation: those who have left a job either willingly or otherwise and are not eligible for Medicare or Medicaid.
COBRA is administered through the U.S. Department of Labor with the goal to prevent anyone from going without health insurance for the first 18 months after losing a job.
There is one advantage and two disadvantages to COBRA coverage. The advantage is that you get to keep all of your current doctors and other medical contacts because your coverage does not change. The two disadvantages are that COBRA only lasts for 18 months under most circumstances, and it is expensive, since the company is no longer covering their share of the costs.
COBRA is offered by employers with at least 20 employees to any employee who was covered by the employer-sponsored health insurance at the time of the loss of the job.
The former employees must receive notice of COBRA availability within 14 days of the qualifying event, and the former employee has 60 days to decide if they want to access COBRA. COBRA starts immediately upon accepted signup.
4. Find Coverage Through The Affordable Care Act
The Affordable Care Act was designed for people who do not get healthcare through their employer, a population that has grown over the years as companies have gone to more contract or freelance employees than full-time ones.
The health insurance marketplace can be complicated, and there is a tight window of two months — Nov. 15 to Jan. 15 — when the open enrollment period is in operation. If you sign up by Dec. 15, your coverage usually begins Jan. 1.
There are four tiers of coverage under the ACA — Bronze, Silver, Gold and Platinum. Those tiers differentiate themselves by how much insurance covers (60 percent for Bronze up to 90 percent for Platinum) once you have exhausted your deductible.
The average cost of Bronze coverage (lowest premiums, highest deductibles) for 2021 was $374 a month, and the average cost for Gold coverage (higher premiums, lower deductibles) was $502. In California, the average cost was $487 per person, and in Florida the average was $467.
The best way to attack the health insurance marketplace is to do your due diligence by determining just what you believe you are going to need in terms of coverage before you reach the age where you are eligible for Medicare.
Here is an easy to use marketplace cost calculator.
Help With ACA Plans
The ACA website provides chat capabilities for anyone with questions about acquiring health insurance through the federal marketplace.
There are also private agents and brokers who can help find insurance for people who do not have employer-sponsored insurance and are too young to qualify for Medicare.
The federal website healthcare.gov explains the difference between an agent and a broker (agents usually work for one firm, while brokers can compare rates for you from several private insurance companies) and provides a link to a list of approved agents and brokers in your area.
For the best result, have all of your information in front of you, from personal financial and health history to the needs you have for health insurance coverage.
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Frequently Asked Questions (FAQs)
What is the Average Cost of Health Insurance for Retirees?
There is a federal law that states that your health insurance coverage cannot be more than 8.3% of your household income. According to AARP, that means a household with an annual income of $50,000 would pay as much as $346 a month or $4,150 annually. But all plans, whether through the ACA or from private insurers, vary depending on how much you want to pay in premiums versus how much you want to pay when you get medical service. Basically, the more you pay in premiums means the more insurance covers when you have a medical cost. The range is from Bronze, where you pay 40% and insurance pays 60% are copays, to Platinum, where you pay only 10% and insurance pays 90% after copays. The Platinum monthly premium will be much higher than the Bronze monthly premium.
Can you get Medicaid if you Retire at 62?
In most states, Medicaid is available to adults under the age of 65 if their income is below 138% of the poverty level. The poverty level for the 48 contiguous U.S. states is $26,500. The poverty levels for Alaska and Hawaii are slightly different.
What is the Full Retirement Age According to Social Security?
The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. However, your Social Security benefits continue to increase after you reach full retirement age until you begin receiving Social Security payments.
Kent McDill is a veteran journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.
You might have left the career you had in the 40-hour-a-week workforce. But now you don’t exactly want to be glued to your couch watching puppy videos. You want to be active, you want to work, and you want to make a little money to support your fun retirement plans.
While “retirement income’’ or “retirement job” might seem like oxymorons, they are a more reasonable pursuit today than in years past due to advancing life expectancies and improved health among older citizens.
Many people reach so-called retirement age and are in no way done with being productive. Many continue in freelance jobs and part-time gigs, whether in a brick-and-mortar setting, from home, or even outdoors.
There are plenty of ways to bring in some extra money to augment pension, social security, or other retirement funds. We’ve rounded up 18 ideas for good jobs for retirees that offer part-time opportunities, flexible hours, or both.
20 Part-time Jobs for Retirees
Most of the examples here require your physical presence on-site, but there are remote jobs, too, such as virtual assistant and customer service work that can be done from the comfort of your home.
As you browse these possible jobs for retirees, keep in mind one warning: If you are collecting Social Security, you can only earn a certain amount each month before your benefits are reduced, until you reach the age of 66 years and 4 months. At that point, you can earn whatever you want and still collect all of Social Security benefits.
So let’s get to work, shall we?
1. Substitute Teacher
Substitute teachers have never been more valuable than they are today. Although most schools have returned to full-time schedules after two years of pandemic struggles, people still get Covid. When that happens to a teacher, their students need someone to keep them occupied — and that could be you.
Most school districts have lenient requirements for substitute teachers, often requiring just a bachelor’s degree with no teaching experience.
To be successful, you need to be ready to deal with a room full of 20 or so children of varying ages. But it could pay off. School districts in Chicago, for example, pay as much as $200 a day for a full day of work.
If you have an advanced degree, you may also qualify to be an adjunct instructor at a community college or four-year university.
2. School Support Worker
Most schools are always looking for crossing guards, recess supervisors and other positions. A call to your local elementary, middle or high school could lead you to a good retirement job that would fit your schedule. Even better is searching online for jobs at your school district. This will give you a range of what’s out there.
This is a classic retirement job that gets you out of the house, allows you to have contact with neighbors, and lets you provide security and safety with another set of adult eyes on the children.
3. Tutor
There are hundreds of tutoring companies in the U.S. who work with kids of all ages to enhance their school education or prepare for college entrance exams. If you sign up with one, they’ll match you with work and you won’t need to market yourself as a tutor.
The hourly pay for these companies ranges from about $13 to $25. Requirements often are limited to a bachelor’s degree, although exam-prep work might require a recent ACT or SAT test score, or might require you to retake the exam for verbal or math instruction.
If you are interested in online tutoring, there are many good paying gigs out there. Match your skills to the openings.
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4. School Bus Driver
School bus drivers can earn up to $20 per hour. They have regular hours with the opportunity to earn extra for field trips or outings. Some states require a specific license (a commercial drivers license, or CDL, for example) or require you to pass a driving test to qualify.
Recent news reports indicate there are many job openings for school bus drivers.
The job is likely to include more than just driving, however. You may be asked to supervise students on the bus, and you may be called upon to discipline rowdy students or those who are making the trip unsafe. A tolerance for children of all ages is probably an important requirement.
5. Shuttle Bus Driver
There are dozens of different types of shuttle bus driver jobs. Most hotels have shuttles to and from airports. Senior citizen homes, churches and community centers often offer shuttles to shopping areas or grocery stores. Hourly pay for shuttle bus drivers can average about $17 per hour, and that’s not including tips from satisfied riders. Like school bus drivers, shuttle bus drivers have regular hours.
Depending on the particulars of the job, a commercial driver’s license might be required.
There are different state laws regarding licensing for shuttle bus drivers. A specialized license might be required if the bus holds a certain number of people or is a particular size. Your state motor vehicle website will tell you what’s required in your state, and any potential employer will know, too.
6. Tour Conductor
Tour guide is one of those jobs that, when you see someone doing it, you think, “Well, I could do that too!”
Businesses, organizations and sites that host tours come in many shapes and sizes, from historical sites to museums, from outdoor walking tours to behind-the-scenes workplace tours. They can be an everyday part of a business or scheduled by appointment. What do they all have in common? A tour leader.
These jobs require knowledge about the subject and the ability to tell a good story — often while walking backwards.
This could be a dream job for someone who knows the topic well and likes to retell stories about history, natural science or architecture (among many other possibilities).
If this appeals to you, don’t overlook a special area of knowledge you’ve developed during all those years in the workplace. Know a lot about the manufacturing industry? Maybe you’re just the person to lead tours at a cheese factory.
Looking for a fun part-time side gig? Here’s how you can earn money visiting theme parks as a Disney nanny.
7. Patient Advocate
The job of a patient advocate is to assist someone who is struggling to cope with the healthcare system. A patient advocate deals with paperwork and appointments, and communicates with healthcare providers to get information on diagnosis, treatment and followup procedures.
Advocates might also be asked to work with insurance companies to understand coverage and costs. Many are asked to help a client obtain assistance with financial or legal issues. The range of duties can be as varied as the patient’s needs.
Being a patient advocate does not require any particular educational degree, but it is possible to become certified in this role.
These positions can be part- or full-time, and they pay well, averaging $18 an hour. So if you plan to collect Social Security benefits, make sure to check how your wage impacts your benefits.
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8. Child Care Provider
Child care might be a bit of a political football these days, but rarely has it been more necessary. Single parents or two-parent families that require or want two incomes are likely to need child care, and that could take the form of a nanny or frequent babysitter.
A babysitter sits in a home with a child or children. A nanny is responsible for getting children to day care or other activities; they are a substitute parent in many cases.
Craigslist, Next Door or other neighborhood job sites are great ways to search for these positions, but your best bet is to work with your personal network. Let people know that you would be willing to work as a nanny or frequent babysitter, and, with the proper recommendation, you could have a very gratifying retirement job.
There are no actual nanny or babysitter licenses or certifications in the United States, but many families require that nannies be bonded, which is a guarantee of service. It is a protection against someone failing to show up for work; one such failure forfeits the bond and that area of work is no longer available to that nanny.
Taking classes in CPR or other emergency response techniques, which offer certifications upon completion, can improve your chances of being hired.
Virtual assistants are independent contractors who offer business services virtually. Those services can include website management, website design, marketing assistance, social media postings, blog writing, email correspondence or any number of clerical duties that can be carried out with a computer and phone. This kind of work is often well-suited to flexible hours.
As of this writing, Ziprecruiter indicated there were more than 174,000 virtual assistant jobs available and suggested that a virtual assistant could make up to $60,000 a year, depending on the work required.
You are more likely to work on an hourly wage determined by your experience and amount of work you are required to perform. There are also job firms that provide virtual assistants; you can sign on with them and accept work as it is offered to you.
Any task that can be done virtually via computer is likely to be requested by a virtual assistant. Firms would rather pay a freelancer than an employee to do the work.
10. Bookkeeper
You have a good head for numbers. You are in charge of your own finances, and you perhaps worked in an accounting role at a previous job.
Many small or civic organizations cannot afford, nor do they truly need, a full-time bookkeeper or accounting service. They are not in it for the money. Often, they are charitable or non-profit organizations. But they need occasional bookkeeping, often with an eye towards tax advantages.
A part-time bookkeeper job often requires simple financial recordkeeping or upkeep of other financial records. Part-time bookkeepers are usually former accountants or have experience as a bookkeeper. They may be asked to track invoices, but most companies use financial services for paychecks.
The average salary for a part-time bookkeeper is around $20 per hour.
11. Umpire and Referee
This is a perfect retirement job if you have a sports background and the ability to withstand criticism.
Competitive sports programs need officials for their games. Baseball, basketball, soccer and football all have leagues at various ages that need officiating. Depending on where you live, the work can be constant. If you get certified for multiple sports, you can work all weekend long and often during the week.
While high-level programs require officials to get licensed or certified, lower-level and youth group programs require just a basic knowledge of the rules. Look around your community for sports leagues in need of umpires or referees.
Pay is often dependent on the age of the players and the competitive level of the organization, but officials are likely to make at least $25 per game. At higher levels where certification is required, you can earn $100 per game.
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12. Pet Sitter and Pet Walker
For between $10 and $15 an hour, you can earn money by pet-sitting in a home or, if the pet happens to be a dog, you can walk the animal. Pet-sitting is a good job for retirees who want to work outdoors without a lot of physical requirements other than being able to walk while pulling or being pulled.
Pet sitter/walker is also a good line of work to get into because one job can lead to another. Pet owners tend to concentrate around each other, and they will give recommendations to other pet owners about a reliable person who can watch Fido or Fluffy while they are on vacation.
If you are going to house-sit the animal, you will likely get paid more for also keeping an eye on the property while the owner is away.
13. Freelance Writer
Although freelance writers no longer provide articles — it’s called “content” now — freelance writing is a gig that can offer the freedom to accept the assignments you want. There are firms that will connect freelance writers to people or companies in need of blogs, resumes, cover letters, marketing content and more.
According to Indeed, the average hourly pay for a freelance writer is approximately $25 per hour, but you are often paid by assignment or by word, so the pay varies. If you have knowledge in certain topics like science and medicine, the pay can be higher.
Writing skills rarely diminish, but the requirements for writing change over time. A knowledge of search engine optimization (SEO) is going to open more doors. Many jobs that use job search websites like Indeed ask for candidates to take a writing test, but many of those are simple grammar or proofreading tests.
While there are occasional situations where someone needs a one-off writing assignment, freelance writer jobs often offer consistent, if sporadic, work. A retiree who can write could have a client for years. Check out this Penny Hoarder article on places hiring freelance writers.
14. Call Center Employee
Just to be clear, we are talking about taking calls from customers, not making calls. A call center representative answers incoming calls from customers or potential customers and either answers questions or sends the caller to someone else who can answer.
As much as this is a remote job, it is definitely a people-person retirement job. You are likely to be talking to someone who is upset or unhappy, and you are the first line of communication for the company you are representing. You need to be capable of being friendly and helpful in the face of unpleasant conversation.
Freelance bartending doesn’t require bartending school and can earn you good money working at large events or small, private parties. Hourly pay for freelance bartenders can be anywhere from $20 to $50 even before tips.
If you can memorize lots of cocktail recipes, if you have an outgoing personality and a steady hand, and if you’re willing to cut people off if needed, this could be a fit for you. Your best bet might be starting out tending bar for people you know and then building a network of referrals.
Plan on some up-front costs, such as a portable bar (if the host doesn’t have one) and basic bar tools. The host is expected to supply the alcohol and mixers. And to protect against possible liability you might want to consider an annual liability policy.
16. Shopping Specialist
Is it the shopping or the buying that you enjoy? If it’s the shopping, then you might consider becoming someone’s personal shopper.
The job title describes the job. You are given a shopping list and the means to make the purchase, and you chase after the items.
Certainly, many people already have personal shoppers and don’t know it. When they contact a grocery store and provide an itemized list of goods they want, someone does the “shopping,” and the items are then delivered.
But true personal shoppers are more likely to purchase clothing and accessories than groceries. A personal shopper often finds items and then sends photos and descriptions to the person who hired them to get approval.
Some high-end clothing stores offer personal shopper services as well. These positions might be a little less “personal,” as they might be a one-day relationship. But the concept is the same.
Personal shoppers who go after groceries or staples are likely to make typical hourly pay of $14 to $20. Those who work for a service are likely on a wage or salary determined by the service rather than by the client.
There’s also money to be made as a mystery shopper. Mystery shoppers are sometimes called evaluators or secret shoppers and often work on their own time. Their job is to document their shopping experiences and report back to the owners to help them improve customer service.
Got what it takes to be a mystery shopper? We’ve rounded up five companies that are hiring retail sleuths.
17. Security Guard
A security guard who does not carry a weapon serves as a presence to discourage inappropriate behavior. While many large businesses like Target or Wal-Mart hire security personnel from a service, small employers such as charitable or service organizations are likely to hire someone who is reliable and gives the appearance of authority.
The responsibilities of a security guard depend on the needs of the company being guarded. There may be requirements that go beyond just being a presence, but the differences depend on the needs of the company.
Hourly pay for security guards without weapons training is likely to be between $10 and $17. Night-time security guards are likely to make more than daytime ones.
This is a good job for retirees who do not mind a bit of boredom.
Security guards who do carry weapons require special training and weapons licensing, and is an entirely different job pursuit, perhaps not as well-suited to a retirement job.
18. Seasonal Job Employee
Remember when you had a summer job as a teenager or a part-time job during your winter break from college? The same logic can work when you’re thinking about some extra retirement income.
Many seasonal jobs are defined by the weather, which is defined by the time of year and the climate where you live. Seasonal jobs are popular, never go out of style (except when the season changes), and can actually be a fun job to look forward to.
Ski resorts in the winter and water parks in the summer are two great examples of places that require seasonal employees. It is not necessary to be a ski instructor or a lifeguard, either. These places require assistance in areas outside of their main purpose: security, transportation, customer service. Even the National Park Service hires seasonal temps.
Also included in seasonal work are holiday positions during the months of October-December. On-site customer service, truck unloading, shelving of new goods, and custodial services are among the positions for which big box stores are likely to need employees. For example in 2021, we tallied more than 500,000 jobs at national retailers and delivery services.
Some stores hold hiring events in October to fill these positions, but they often continue searching for employees throughout the final three months of the year.
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19. Baker/Butcher
Perhaps you grew up baking your own bread, and your cupcakes were legendary at your kid’s school events.
Perhaps you know your way around a rump roast, or can identify all the various cuts of meat they offer at your local butcher.
You could turn your lifelong interest in food preparation into a part-time job, and you are likely to be welcomed because you don’t need as much training as a newbie. Your local grocery store would be a good place to start, letting the hiring manager know that you have some background as a butcher or baker.
These are speciality skills, and as such get paid better than some other positions. According to the U.S. Bureau of Labor Statistics, a butcher’s hourly wage is approximately $17.15 an hour. Payscale.com lists the average hourly wage for a baker at just over $13 per hour.
20. Specialty Store Employee
You know which hardware store to go to to get advice from someone who has fixed a toilet in their life. You know which fabric store to go to where the employees know the difference between chiffon and silk.
You could be one of those employees.
During your life, you have become knowledgeable about some aspect of household or everyday life. People with your knowledge are hired by companies to help people who do not yet have that experience. Stores that serve a specific type of customer would love to hire someone they don’t have to train extensively.
According to payscale.com, the average hourly rate for a hardware store employee is just under $13. Indeed says a sales associate at a specialty store will make an average of just over $10 an hour, maybe more now that minimum wages are increasing across the country.
Pro Tip
The Penny Hoarder’s Work-From-Home Jobs Portal makes the remote-job hunt easy. Our journalists scour the web for the best gigs, vet the companies and aggregate the latest listings in one place.
Kent McDill is a veteran journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.
I am a widow. My husband was 53 when he died. He was collecting Social Security disability for about two years preceding his death.
I am nearing retirement age and was planning on taking his Social Security when I reach my full retirement age, and then switching to mine when I turn 70.
Is this option still available? Would I be eligible for 100% of his? When I called Social Security, the lady said, “It will be a surprise.” Surprise, my foot! I need to know.
I also may have a difficult time proving we were married. Our wedding license burned up in a recent house fire. We were married in the Bahamas, and I doubt they keep records. I might be OK in that I had the marriage license at the time of his death and used it to collect the one-time $255 death benefit, so it may be in the system. That may be my only salvation.
I have received so many conflicting answers regarding being able to switch from his to mine when I’m 70.
-S.
Dear S.,
I don’t think you’re in for any big surprises. As long as you’re eligible for your late husband’s survivor benefits, you’re allowed to start survivor benefits, then switch to your own higher Social Security benefit later on. And even without the actual marriage license, you should be able to prove that you were married.
Let’s start with the first issue, though. I suspect that the confusion you’re running into stems from the fact that the rules have changed for spousal benefits, which are paid to spouses and ex-spouses based on the work record of someone who’s still alive.
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The Penny Hoarder’s Robin Hartill is a Certified Financial Planner and the voice of Dear Penny.
In the past, married couples often used what was known as a restricted application. One spouse would file an application for spousal benefits only as early as age 62. Then, they’d switch to their own retirement later on. This was a popular way to maximize benefits because the longer you wait to take Social Security, the bigger your checks will be.
But a 2015 law ended this strategy for anyone born after Jan. 1, 1954. However, there are exceptions for spouses who qualify for disability benefits or are caring for a child who’s younger than 16 or disabled.
The important thing to know is that this change doesn’t apply to survivor benefits. You can claim survivor benefits as early as 60 or age 50 if you’re disabled. Then you can switch over to your own benefit as early as 62 or as late as age 70 if you want the maximum benefit.
Unlike retirement benefits, survivor benefits cap out at full retirement age. You’ll get 100% of your late husband’s benefit at that point. So you’ll get the biggest Social Security checks possible by doing what you’re planning.
If you don’t want to take my word for it, here’s what Social Security’s website says: If you’re eligible for both survivor and retirement benefits but haven’t yet applied, “You can apply for retirement or survivors benefits now and switch to the other (higher) benefit later.” For all the rules on this topic, check out Social Security’s publication “If You Are the Survivor,” which is available online.
You should also be able to document that your marriage did, in fact, exist even if you have to jump through a few more hoops. I don’t know if Social Security would be able to use the one-time $255 payment you received when your husband died as evidence. But in the absence of a marriage certificate, you may still be able to obtain a certified copy of your marriage documents by contacting the U.S. embassy in the Bahamas.
When official documents aren’t available, Social Security will also accept other evidence, like witness statements or photographs from the ceremony. You probably have evidence of the house fire that you could use as proof of why you don’t have the original marriage certificate. I’m guessing you have other documents, like tax returns or property records if you owned a home together, that you could use as additional proof.
Sometimes when you have a complicated situation, you won’t get perfect information by calling Social Security. There are so many complicated rules, and it’s impossible for one person to have the right answer for every scenario. But you can often find the information you need on Social Security’s website, ssa.gov.
Try to find as much information as possible before you call. If what you’re told conflicts with official Social Security information, point out the discrepancy. Ask them to refer you to the exact rule they’re citing. It may also be helpful to take notes during each phone call. Document the time and date of the phone call and the name of the employee you speak with.
Dealing with any bureaucracy can be a headache. But it sounds like you have a smart strategy for maximizing your Social Security. If you do a bit of prep work, I don’t think you’ll encounter any major hurdles in claiming the benefits you’re entitled to.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].
The Social Security Administration will start sending out 2023 cost-of-living adjustment (COLA) notices by mail throughout December.
Starting Jan. 1, Social Security benefits will increase by 8.7%. But what does that mean for your check?
How to Find Out Your 2023 Social Security COLA
You can see your COLA notice online sooner by creating a My Social Security account no later than Nov. 15.
If your COLA isn’t available online yet, you can get an update as soon as it’s posted by enabling account notifications. Simply log into your My Social Security account, then select email or text notifications under message center preferences.
Or, you can do the math yourself.
Simply multiply your current benefit amount by 0.087 to determine how much your monthly payment could increase.
For example, if you receive an average monthly Social Security benefit of $1,200, you would multiply that by 0.087 and find that your checks will increase by about $104 per month next year.
Roughly 70 million Americans will see a historic 8.7% bump in their monthly Social Security benefits and Supplemental Security Income payments next year.
It’s the largest cost-of-living adjustment in 40 years.
How to Create a My Social Security Account
If you don’t already have an account, you can create one anytime. However, only beneficiaries who created an account prior to Nov. 15 will receive their 2023 COLA notice online.
It’s a good idea to create an online account for other reasons, too — especially if you receive Social Security or SSI benefits.
With a My Social Security account you can also:
Request a new Social Security card.
Set up or change direct deposit.
Get your Social Security tax form (SSA-1099).
Print a benefit verification letter.
Change your address.
To create an account, you’ll need to do the following:
Verify your identity by entering personal information about yourself.
Answer some security questions.
Create a username and password.
Confirm your email address or phone number by entering a one-time security code.
Whether you have an online account or not, you can expect to receive a paper notice in the mail in upcoming weeks.
How Much Money Will the Average Social Security Recipient Get in 2023?
Here’s what that looks like for the average recipient:
Retired workers will get an extra $147 a month on average, bringing the average monthly benefit to $1,827.
Disabled workers will get an extra $119 a month on average, bringing the average monthly benefit to $1,483.
The maximum Supplemental Security Income (SSI) benefit for individuals will increase by $73 a month, bringing the maximum monthly benefit to $914.
Have questions about Social Security? We have answers.
You Get to Keep More of Your COLA This Year
A bigger Social Security check isn’t the only thing retirees have to look forward to in 2023.
The Medicare Part B premium, which is typically deducted from Social Security benefits, is going down next year by $5.20 per month, or 3%.
For retirees, the combination of higher Social Security checks and lower Medicare Part B premiums means more money in the pocket of retirees. Most years, Social Security COLAs are eaten up by rising Medicare costs.
On a fixed income? Learn more about the Medicare premium changes — along with steps you can take to lower your health care costs.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
I am 57 with $285,000 in a brokerage account, and about the same amount in retirement accounts. I am currently maxing out the amount I can put in my employer’s retirement plan.
However, with the market continuing to go down I am wondering if I should just keep more in cash. I understand that with the market down I am essentially buying shares “on sale.” But if the price continues to fall I won’t have that long to recoup the loss due to my age. Thoughts?
-M.
Dear M.,
It depends on what you mean by “keep more in cash.” It’s painful to watch money evaporate from your investment accounts. That’s especially true when retirement is finally in sight — though these days, “Should I cash out?” is a question I’m getting from readers of all ages. But unless you’re facing a dire necessity, I wouldn’t cash out investments right now.
The most obvious reason is that the stock market is down about 20% year to date as of late October 2022. Your fear is that you won’t be able to recoup your losses. But until you sell, any losses you’ve already incurred only exist on paper. Should you cash out now, you’d guarantee that your investments will never rebound.
Got a Burning Money Question?
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DISCLAIMER: Select questions will appear in The Penny Hoarder’s “Dear Penny” column. We are unable to answer every letter. We reserve the right to edit and publish your questions. But don’t worry — your identity will remain anonymous. Dear Penny columns are for general informational purposes only, but we promise to provide sound advice based on our own research and insights.
Robin Harthill
Thank You for your question!
Your willingness to share your story might help others facing similar challenges.
While we can’t publish every question we receive, we appreciate you sharing your question with us.
The Penny Hoarder’s Robin Hartill is a Certified Financial Planner and the voice of Dear Penny.
A less-discussed reason is that there’s a risk in having too much of your retirement savings in cash. People approaching retirement often worry that a crash could derail all their careful planning, and rightfully so. But at 57, you could easily live another three or four decades.
Even after you retire, you need your money to continue earning money. If a large chunk of your retirement money is in cash or other low-risk, low-return investments, you may need to withdraw substantially more than your money earns. At that point, running out of money becomes a real concern.
Building up more cash savings is a great goal. That way, you have a cushion for your retirement years. The worst-case scenario is a prolonged bear market that hits once you’ve already retired. If you don’t have liquid savings and you’re living off your investments, a downturn is a financial nightmare. You’re forced to withdraw from depleted investments that never get the opportunity to rebound.
When you’re still working, you typically want at least three to six months’ worth of liquid savings on hand. But when you’re preparing for retirement, you should up this target. Ideally, you’d have two or three years of savings. That may not be realistic for a lot of people, but any extra cash you can save provides a valuable buffer.
If you have a decent amount of disposable income, you could try scaling back on non-essentials to build your cash savings and keep investing as usual. But if that’s not an option, I’d keep maxing out your contributions to your employer-sponsored plan to milk the tax advantages and invest less in your brokerage account.
It’s also worth it to meet with a financial adviser to review your asset allocation, even if it’s just a one-time engagement. You probably don’t want to do significant rebalancing while the market is still down. But you could work out a strategy to start moving your money into safer assets once the market recovers.
Keep in mind that investing is only one part of retirement planning. A little flexibility can go a long way. For example, if you’re in good health and your job is stable, you may want to work a bit longer than you’d planned. That gives your money more time to rebound. Plus, that can help you hold out for more Social Security, which can help fill the void when the stock market takes a dip.
Even though it’s scary when the stock market poses a threat to your retirement, it helps to put things in perspective. The average bear market — defined as a 20% or more drop from peak to bottom — lasts less than 10 months. More importantly, the stock market has always rebounded from its losses. So try to ignore the daily fluctuations in your 401(k) balance and check in once a month or quarter instead.
Probably the hardest part of protecting your retirement savings is that we naturally want to take action when the market is down. But that’s precisely the opposite of what we should do. A hands-off approach is best when things are bad. Then, you need to have the discipline to take action, by rebalancing or selling off, when the market is strong, even if that means forgoing potential returns.
Don’t take any major actions based on the latest stock market news. But do make it a goal to gradually save more cash while also continuing to invest. The stock market can be a scary place to keep your money in the short term. But in the long run, it’s a pretty reliable generator of wealth.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected],
Stock trading firm Zerodha’s co-founder and CEO Nithin Kamath has shared some do’s and don’t for millennials and generation Z, who according to him need to take retirement a little seriously.
Kamath, who keeps sharing valuable tips for investors, on Saturday said what new generations don’t think about enough is that the retirement age is dropping fast due to technological progress and life expectancy going up due to medical progress.
As per American think-tank Pew research, anyone born between 1981 and 1996 (ages 23 to 38 in 2019) is considered a millennial, and anyone born from 1997 onward is part of a new generation (Gen G).
Kamath said that the retirement crisis will probably be the biggest problem for most countries in the next 25 years. Earlier generations, he said, got lucky with long-term real estate and equity bull markets that helped them create a retirement corpus but that may not be the case for new generations.
The stockbroker and investor said that in 20 years, retirement could be at 50 and life expectancy at 80. “How do you fund the 30 years?” he asked.
If climate change doesn’t kill us all, the retirement crisis will probably be the biggest problem for most countries 25 years from now, he said in a LinkedIn post.
“Earlier generations got lucky with long-term real estate & equity bull markets that helped create a retirement corpus. Unlikely in the future,” he added.
So, he suggested four things that new generations need to do to avoid a post-retirement crisis.
Kamath’s first advice to the new generations is to stop getting triggered by everyone trying to lend and stop borrowing to buy things you don’t need or depreciate in value. Second, start saving early and diversify across FDs, government securities, and SIPs (Systematic Investment Plans) of Index funds, ETFs (Exchange-Traded Funds). He said stocks are probably still the best bet to beat inflation long term.
Third, Kamath said one needs to have a comprehensive health insurance policy for oneself and everyone in the family. He said one health incident is enough to push most people into financial ruin or set them back many years financially. “Jobs don’t last forever, hence one policy outside of what is provided at work,” he added.
Fourth, if one has dependents, s/he should be covered. “Buy a term policy with adequate cover. In the worst case, this money in a bank FD should cover their financial needs,” Kamath wrote. In the last, he said the biggest fix for most people is they should stop taking loans.
Opinions expressed by Entrepreneur contributors are their own.
Retirement savings is crucial for everyone because relying on social security is not enough to sustain yourself through your twilight years, especially considering that without any changes, the current social security system will only be able to pay benefits at 80% in 2035 and beyond. And the sooner you start, the better off you are.
It’s true that tax-deferred accounts like traditional IRAs, 401(k)s, defined contribution plans and cash balance plans allow you to save a portion of each paycheck, tax-deferred, to live on once you hit retirement age. Still, everything you’ve learned about these types of accounts is wrong. And here’s the scary part — it’s not that the people spreading incorrect information are uninformed. Many of them absolutely do know that what they’re telling investors is wrong, but they continue because they have a financial incentive to do so.
So in this article, I’m going to break down why what you know about your tax-deferred accounts is wrong and what you can do to ensure your retirement is spent living the life you love rather than struggling to make ends meet.
While most tax-deferred accounts may seem like a great thing, they actually come with a lot of severe disadvantages that adversely affect your investment and retirement goals.
You’ll face higher taxes in the future
You may get a perceived tax break right now by putting money into your tax-deferred accounts, but all you’re really doing is deferring your taxes. It’s true that this does allow you to accumulate a larger balance due to compounding, but that also means you’ll pay higher taxes when you eventually do begin withdrawing your money.
As time goes on, there’s always the risk of higher tax rates when you take distributions. This alone should make you reconsider because you could easily end up paying more tax than you would now. In many cases, your tax-deferred compounding may not make up for the higher taxation, especially in the new economy of stagflation and higher interest rates.
Most people today go through their daily lives with a false sense of security in their financial decisions. That’s both because we’ve all been misinformed by many in the financial industry and because most people have delegated their financial decisions to someone who has a vested interest in them investing in certain financial asset classes.
It’s only much later in life, near or after retirement, when most people realize that they’ve made the wrong financial decisions, and by then, it’s usually too late.
Any money you place into a tax-deferred account is locked until you reach age 59.5. This means that unless you want to pay a hefty penalty to access it earlier, you’re stuck letting Wall Street handle your funds. There’s no ability to access or use the money for a better investment opportunity that may come along.
With few and limited exceptions, if you leave the workforce before age 59.5, you can’t live off of your investments if they’re all in a tax-deferred account. A Roth IRA will let you withdraw your contributions but not your earnings, providing some flexibility with those funds.
You learn little to nothing about investing
When you put your money into these tax-deferred accounts, you’re trusting your financial future to the financial advisors and money managers who have a vested interest in you following the status quo. Essentially, they make their money by getting you to invest in certain financial instruments and have no direct responsibility or liability for actual performance.
This teaches you nothing about how to make the most of your wealth, how to use your assets to generate cash flow or how to ensure you’re making solid investments. This is, in my opinion, the biggest disadvantage that no one talks about: Abdication of your own financial future.
If you discover a fund, stock or another investment that you want to buy, but your retirement plan doesn’t offer it — you’re simply out of luck. The limited choices are meant to keep administrative expenses low, but those limitations prevent you from having full control over the growth of your assets.
Other tax benefits, such as cost segregation, depreciation and long-term capital gain lower tax rates, are void inside these tax-deferred accounts. You also lose the stepped-up basis tax mitigation allowance for assets you wish to pass to heirs, which greatly reduces the ability to create generational wealth.
Ridiculous fees and costs
The small company match in your 401(k) isn’t much more than a little bit of extra compensation. If you’re only using a 401(k) for retirement, you’re doing yourself a disservice. They’re full of fees, from plan administration fees to investment fees to service fees and more. And the smaller the company you work for, the higher these fees tend to be.
Even if your fee is just 0.5%, which is the absolute bottom of the fee range, you’re still paying far more for your 401(k) than you should, and that money could be invested in other places to help fuel your retirement growth. For example, if you’re maxing out your contributions at $19,500 per year, with an additional $3,000 in employer contributions, you’ll pay about $261,000 in fees, which translates to 9.5% of your returns.
Opting out of a 401(k) retirement plan enables you to take that 9.5% and invest it in other more effective ways that will provide a higher return. But what should you do instead?
Self-direction and Roth IRA conversion
Qualified retirement accounts not tied to an employer-based plan may be “self-directed.” This means that you, the account owner, can choose from an unlimited number of investment assets, including alternatives such as real estate. Moving such accounts from your existing custodian to one that allows for full self-direction is easy to do and should be high on consideration for those who want more control over their investments.
Roth conversions can be a great way to save money on future taxation. You can convert your traditional IRA into a Roth IRA, which means you will pay taxes on the money you convert in the year of conversion, but after conversion, your money will grow tax-free. This is a great way to save money on taxes in the long run since you won’t have to pay taxes on the money you withdraw from your Roth IRA in retirement.
Don’t forget the J-Curve strategy
The idea behind the J-Curve is that if a non-cash asset is converted from a traditional IRA to a Roth IRA and it experiences a temporary loss in market value, the tax on the asset conversion can be proportionally lowered based on the reduced asset value at the time of conversion.
This strategy is available to anyone who’s invested in stocks, bonds, mutual funds and index funds and experienced a market loss. In the alternative space, however, the decreased valuation is based on information known in advance, with a plan based on a future value add to the asset. This means that while you don’t take a realized loss over the long term, you can benefit from a paper loss to reduce your tax exposure in the short term.
The J-Curve strategy is underutilized, mainly because so few people know about it, but it can save you hundreds of thousands of dollars when properly applied.
Ignore what you’ve been taught about retirement savings
If you want to dramatically change the trajectory of your retirement and create generational wealth for your family, I have a simple piece of advice — ignore everything the financial industry has taught you about tax-deferred accounts.
Take the time to learn about investing, and avoid the traditional tax-deferred accounts like traditional IRAs, 401(k)s, defined contribution plans, and cash balance plans — instead, leverage assets like Roth IRAs and real estate, which are superior in literally every way.
Your initial enrollment period is a seven-month window around your 65th birthday.
It begins three months before you turn 65 and extends three months after your birth month.
If you’re already receiving Social Security retirement benefits, you’re automatically enrolled in Medicare when you turn 65.
Some people choose to delay Medicare if they’re still working.
However, the best way to avoid Medicare late enrollment penalties is to sign up for coverage when you’re first eligible.
Medicare Part B Late Enrollment Penalty
Medicare Part B helps cover your doctor’s visits, preventative services, outpatient care, medical equipment and more.
If you don’t enroll in Medicare Part B during your initial enrollment period, you’ll face a 10% penalty for each 12-month period you delayed enrollment.
Once you get hit with a Part B penalty, you’re usually stuck with it for as long as you have Medicare Part B. For most people, that’s the rest of their life.
Here’s an example.
Let’s say you don’t sign up for Part B until four years after you’re first eligible.
You’ll face a premium penalty equal to 40% of your premium in addition to your regular monthly payment.
You’ll keep paying that higher amount for as long as you have Medicare Part B.
In 2023, the Part B premium is $164.90. If you waited four years to sign up, you’d owe $65.96 (40% of $164.90) on top of the standard Part B premium.
And remember, the standard Part B premium typically increases slightly each year. So you’ll pay at least $230.86 per month for as long as you have Part B coverage.
How to Avoid the Medicare Part B Late Enrollment Penalty
You can delay enrollment in Part B (and avoid the penalty) if you’re enrolled in creditable coverage.
Creditable coverage for Part B is limited to enrollment in:
Group health insurance plan at work through your employer or your spouse’s employer.
Group health insurance from a union.
Federal Employees Health Benefits.
If you have health insurance from a small company with fewer than 20 employees, you’ll likely need to enroll in Part A and Part B when you turn 65. Small workplaces aren’t required to continue your health care coverage once you’re eligible for Medicare.
Being covered by an Affordable Care Act plan from the Health Care Marketplace doesn’t count as creditable coverage for Part B. Neither does VA health care benefits.
Special Enrollment Period
After your employment-based coverage ends, you’ll qualify for a special enrollment period.
A special enrollment period is for people who didn’t sign up for Medicare Part B during initial enrollment because they had health insurance through their employer, union or spouse.
The eight-month special enrollment period begins the month after your employment ends or the group coverage plan ends (whichever comes first). During this time, you can sign up for Medicare without facing a premium penalty.
Medicare Part D Late Enrollment Penalty
Technically, enrolling in Medicare Part D prescription drug coverage is voluntary.
However, if you delay enrollment in Medicare Part D — or a Medicare Advantage plan that includes drug coverage — you could be hit with a penalty if you enroll later.
And you’ll pay the penalty for as long as you have Medicare Part D.
You’ll also owe a late enrollment penalty if at any time after signing up for Part D, there’s a coverage gap of 63 or more days in a row when you didn’t have a Medicare drug plan or other creditable prescription drug coverage. This can happen if you drop your current Part D plan and fail to sign up for a different one.
Even if you don’t take any medication now, you should join a Medicare prescription drug plan when you turn 65. Many Medicare plans offer little to no monthly premiums.
Pro Tip
You can find a Part D drug plan by using this tool from Medicare.
How Much Is the Part D Late Enrollment Penalty?
The Part D late enrollment penalty depends on how long you went without a Medicare prescription drug plan or other creditable drug coverage.
Medicare calculates the Part D penalty by multiplying 1% of the “national base beneficiary premium” ($32.74 in 2023) times the number of full months you went without Part D or creditable coverage.
That number is rounded to the nearest 10 cents and then added to your monthly Part D premium.
The national base beneficiary rate usually increases slightly each year, so your penalty amount may also change each year.
Here’s an example.
Sarah’s initial enrollment period ended Sept. 30, 2019. She didn’t join a Medicare drug plan and she isn’t covered by any other credible source.
Sarah signs up for Medicare Part D in late 2022 and her coverage begins Jan. 1, 2023. She went 39 full months without prescription drug coverage.
Sarah’s penalty is 39% (1% for each of the 39 months) of $32.74 — the national base beneficiary premium for 2023.
This equals a penalty of $12.77 each month.
Since the monthly penalty is always rounded to the nearest 10 cents, Sarah will pay $12.80 each month in addition to her plan’s monthly premium.
How to Avoid the Medicare Part D Late Enrollment Penalty
You can avoid the Part D penalty if you’re covered under an employer’s prescription drug plan that’s expected to pay, on average, at least as much as Medicare’s standard drug coverage.
You can also avoid it if you maintain creditable prescription drug coverage from any of the following:
A current or former employer or union
TRICARE
Indian Health Service
Department of Veterans Affairs
Individual health insurance
If you’re not sure if your current drug plan counts as creditable coverage, check with your plan provider.
Once you’re no longer enrolled in creditable prescription drug coverage, you have 63 days to sign up for a standalone Part D plan or a Medicare Advantage plan with prescription drug coverage.
When you enroll in Medicare drug coverage, tell the provider about your previous creditable coverage. Otherwise, you may still get slapped with a late enrollment penalty.
Finally, people who qualify for the Extra Help program won’t pay a penalty when they sign up for a Medicare drug plan.
Extra Help is Medicare’s prescription subsidy program for people with low incomes. If you qualify for Medicaid services, you generally qualify for the Extra Help program.
Medicare Part A Late Enrollment Penalty
Ninety percent of people don’t pay a premium for Medicare Part A, which covers hospital stays and skilled nursing facilities.
If you paid Medicare payroll taxes for at least 10 years, you qualify for premium-free Medicare Part A. There’s no late enrollment penalty in that situation.
But if you’re in the 10% of people who are required to buy Part A and you don’t sign up when you’re first eligible, your monthly premium can go up 10%.
You’ll have to pay the higher premium for twice the number of years you didn’t sign up.
So if you didn’t sign up for Part A for two years after you were first eligible, your Part A premium will be 10% higher for the next four years after you enroll.
Here’s an example:
You were first eligible for Medicare on Jan. 1, 2021 and you don’t qualify for premium-free Part A.
You didn’t enroll in Part A until Jan. 1, 2023.
In 2023, people who buy Part A pay a premium of either $278 or $506 per month, depending on how long you or your spouse worked and paid Medicare taxes.
Your Part A premium will either be $305.80 or $556.60 per month for the next four years.
After four years, the 10% penalty goes away.
If your state pays your Part A premiums through a Medicare Savings Program, you’re not liable for late penalties.
Why Does Medicare Charge Late Enrollment Penalties?
Medicare relies on healthy people to pay into the program to help offset the higher health care expenses of unhealthy people.
If everyone waited to sign up for Medicare until they needed it (aka their health declined), Medicare would be unable to keep up with costs.
That in turn would increase the price of premiums for everyone enrolled in Medicare.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
When your 62nd birthday approaches, you’ll have a big decision to make: Should you take Social Security at 62 and accept lower benefits? Or should you delay Social Security to get a higher benefit amount?
The answer to whether taking Social Security at 62 is the right move for you depends on several factors: your life expectancy, whether you’re retiring early and your overall financial situation. Here are some things to consider in your retirement planning.
How Claiming Social Security Early Works
If you’re claiming Social Security based on your own record or you’re taking spousal benefits, you can start benefits as early as age 62. If you’re a surviving spouse, you can begin receiving benefits at 60. However, by taking benefits earlier, you’ll face a lifetime benefit reduction.
Your Social Security benefit is based on your primary insurance amount. That’s the amount you’d receive if you started your benefits at full retirement age. If you were born in 1960 or later, your full retirement age is 67. Full retirement age ranges from age 66 for those born in 1943 to age 66 and 10 months if you were born in 1959.
Any time you take Social Security before your full retirement age, you’ll have to accept a reduced benefit. Your benefit will be 6.66% lower for each year of early benefits. If you start them at that earliest eligible age of 62, your benefits will be 30% lower than they’ll be if you wait until you reach normal retirement age.
However, if you can hold out past full retirement age, you’ll earn delayed retirement credits. These amount to 8% per year until your Social Security benefits cap out at age 70. Waiting until age 70 results in a monthly benefit that’s 77% higher compared to if you started at age 62.
Pro Tip
If you’re claiming spousal benefits, you won’t be able to earn delayed retirement credits. Your benefit will max out at your full retirement age.
Maximum Social Security Benefit in 2023
Starting Age
Maximum Benefit
Age 62
$2,572
Age 65
$3,279
Age 66
$3,506
Age 67
$3,808
Age 70
$4,555
When Taking Social Security at 62 Makes Sense
Choosing when to take your Social Security retirement benefits is one of the biggest personal finance decisions you’ll ever make. However, you may want to start benefits as early as age 62 in the following situations.
You Have Health Problems
If you’re in poor health or your parents died relatively young, claiming early often makes sense. Your Social Security payments will be lower, but claiming early may result in higher overall lifetime benefits.
Keep in mind, though, that your life expectancy is difficult to predict. Even if your health isn’t perfect, there’s a good chance you’ll live longer than you predict. According to the Centers for Disease Control, someone who turned 65 in 2020 could expect to live another 18.5 years on average. Outliving your money is a much bigger risk than leaving money on the table.
Pro Tip
While you can claim Social Security retirement benefits as early as age 62, most people don’t become eligible for Medicare until age 65.
You Have a Pressing Financial Need
The irony of Social Security is that the people who most depend on it often can’t afford to hold out for a bigger monthly benefit. That’s because many older workers are forced to retire early because of health problems, a layoff or caregiving duties. Social Security income can be a lifeline in these situations.
If delaying Social Security retirement checks would push you into debt, claiming early is a wise decision. Likewise, if delaying Social Security would cause you to forgo health insurance or medical treatment, you don’t want to wait.
You’re Not Planning to Work
Taking Social Security while working before full retirement age will reduce your monthly benefit if your salary exceeds certain limits. In 2023, Social Security will reduce your benefit by $1 for every $2 you earn above $21,240. The year you reach full retirement age, the annual limit is $56,520 and Social Security will only withhold $1 for every $3 you earn above this amount. Once you reach your full retirement age, you don’t have to worry about a reduced benefit.
But you’re not permanently giving up that money. When you hit normal retirement age, Social Security will recalculate your benefit at a higher amount to give you credit for the withheld funds. However, this temporary reduction often makes it so that taking Social Security early when you’re still employed isn’t worth your while.
When to Delay Taking Social Security
Obviously, there’s a lot of guesswork involved in terms of when to collect Social Security benefits. If these circumstances apply, consider waiting to claim benefits so you can collect more money each month.
Your Health Is Excellent
Taking early benefits typically doesn’t make sense when you have an above-average life expectancy. Social Security’s cost of living adjustments, or COLAs, have severely lagged behind the real-world living cost increases seniors face. Though soaring inflation pushed the 2023 Social Security COLA to 8.7%, in most years, it’s hovered around 1% or 2%. Starting with an already reduced benefit makes it tough to keep up.
If you expect to live into your 80s or 90s, waiting is often the best move. Every year you wait past 62, your checks will increase by 6.66% until full retirement age. After that, they’ll increase by 8% until you hit the maximum benefit at age 70.
Your Spouse Will Claim Your Benefit
If you’re married, you can’t just think about your own Social Security retirement benefits. You need to consider how your decision affects your spouse.
Often it makes sense for the higher-earning spouse to wait, particularly if they’re significantly older than the lower-earning spouse. If the higher earner dies before the lower earner, the lower benefit will be able to switch over to the higher survivor benefit. The widowed spouse can receive up to 100% of the deceased spouse’s benefits.
You’re Postponing Retirement
If you’re still able to work and you enjoy your job, delaying Social Security is a sound strategy. By not taking early retirement, you’ll be able to get a bigger benefit, of course. But by earning a paycheck, you can avoid taking money out of your 401(k) or individual retirement account (IRA), giving your money more time to compound.
Can You Undo Your Decision to Claim Social Security?
You have two opportunities to reverse your decision to take Social Security retirement benefits.
You can withdraw your application: If you took Social Security early and it’s been less than a year, you can fill out Form SSA-521 to withdraw your application. You’ll need to repay Social Security for all benefits you received, along with any taxes or Medicare premiums that were withheld. When you’re ready to restart benefits, you’ll need to reapply. Then, you’ll qualify for a higher benefit based on your age at the time.
You can suspend your benefits if you’ve reached full retirement age: If you’ve reached full retirement age but want to earn those 8% delayed retirement credits, you can contact your local Social Security office and ask to suspend your benefits. For example, if you suspend your benefits at age 67 and restart them at 69, your payments will be 16% higher. Your checks will automatically resume once you turn 70 if you don’t restart them sooner.
As you can see, your options for reversing your decision to start benefits are very limited. If you’re unsure about how to proceed, it’s essential to talk to a financial advisor before you take that first Social Security check.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected]or chat with her in The Penny Hoarder Community.
Retiring from your profession is something that will happen sooner or later. When your hair becomes too gray, and you can no longer keep up with the amount of work that needs to be done, you will most likely be on your way out of the company, on your way to enjoying your golden years at home, in a retirement community or getting busy with your garden.
Due – Due
Early retirement is a different story, though. It’s not common among today’s professionals, especially in the current economic landscape. There is more than one reason why only a small percentage of the working class retire early, and if you are one of the few people who plan on doing it soon, there might be some things you’re not aware of. That’s why in this post, I’ll explain 12 things you must consider before deciding to retire early.
#1 You need to have enough money to fund your healthcare.
One benefit of working is that your company sometimes covers part or all of your healthcare needs. This is especially helpful if you are on constant medication or have a family member or dependant who relies on one. Even without this benefit, having a stable source of income still provides a way to set aside funds for your healthcare.
Early retirement will strip you of this benefit, and it can be rather costly to shoulder the expenses. In the US, the average person spent $12,100 on healthcare in 2020. The government does provide some help to ease this dilemma, but it will not be available for early retirees until they reach the age of 65.
Depending on the age you plan to retire, this could possibly mean shouldering decades’ worth of health-related expenses, and it will not be light on your pockets. So, you’ll need to do some good planning and have a large enough emergency fund set aside just for those expenses.
#2 It might not be as difficult as it seems to live steadily.
While early retirement is generally seen as expensive in the long term, it may not be the case for everyone. If you have been a prudent worker and have saved enough for your plan to take off, secured alternate sources of income, and considered the impact of inflation, you are more than ready to leave your workspace and settle for good.
Also, retiring does not necessarily mean that you have to let go of any earning opportunity. Nowadays, there are many ways for you to earn passive income while having the time of your life. Investing in stocks, cryptocurrencies, or making a living out of your passion are some things you can do to still have an inflow of resources even after retiring early.
Additionally, you can adopt wise money-saving decisions to help manage your finances, like budgeting, tracking your expenses daily, taking advantage of coupons and promos, and avoiding making impulsive purchases, especially those that are costly.
#3 You must think of ways to pay your mortgage or rent.
Unless your decision to retire early from work is amplified by the fact that you no longer need to make monthly payments for your home, you need to think of ways to cover your mortgage payments. They can get expensive, especially when you no longer have a steady stream of income, and future repairs can also be an additional burden.
You also have to consider property taxes, as they might increase depending on how the economy performs in the following years. It’s much better to expect the worst when it comes to these things, as having inadequate funds can put you in a tough predicament in the future.
#4 Early retirement is only practical if you make a decent passive income.
Even if you have decided to free yourself from the shackles of unreasonable work hours and tedious responsibilities, the world will not stop charging you from living. Expenses will continue to pile up, you will need to eat, pay your bills, and as cliche as it sounds, enjoy yourself and be happy.
All of these things will require money, and the need for money calls for a way to earn it. Unless you have millions, your savings can only get you so far in life, even if you manage them wisely. Therefore, you still technically need to exert some effort to earn money.
But if you’re looking for a leisurely retirement sipping margaritas in a tropical paradise without lifting a finger, that will only happen if you manage to produce passive income. You don’t necessarily need to earn enough to cover 100% of your expenses, but at least enough to lower withdrawals from your savings to help make them last for the rest of your life.
If you don’t make passive income, you’ll have to get back in the saddle. Perhaps a different arrangement, like a remote or work-from-home job you can do part-time, could be enough, or you may even need to go back to full-time. This is why, in many cases, retiring early from work isn’t so much retiring as it is replacing one type of work with another unless you are a son of a billionaire or an heir to generational wealth.
#5 Money will not be your top priority if you retire early.
While it is still a factor you need to consider when planning your retirement, money will not play as big of a role in your journey after leaving work as it did when you were still working a nine-to-five. People who retire early want to be free from being slaves of the corporate world, and that is what they focus on.
It will make no sense to retire early only to live the rest of your life worrying about money, will it? No one tells you this when you’re about to retire, and it will either dawn on you the moment you decide to pass your resignation letter or arrive as a late realization.
However, this may put you in a tricky spot if you don’t plan your retirement adequately because you DO need to worry about money. You don’t want to live a couple of blissful years of happy retirement in complete denial only to be hit by the reality that you no longer have any money and need to get back to work.
#6 You’ll be stronger and healthier and have more time to enjoy the things you like.
One drawback of retiring at an old age is while you do have all the time and freedom in the world, your age will simply hinder you from enjoying that freedom. If you retire early, you will have the best of both worlds as you’ll have both the time and the energy to do anything you want and more.
Retiring in your twenties or thirties means you’ll actually be able to tick off all the things on your bucket list–travel to Greece, get a dog, visit a museum, write a book, or finish reading all the books that have been collecting dust in your room. Before you know it, you’ll be out of things to do, so make sure to write a long bucket list.
#7 You’ll have to pay hefty fees to access your retirement fund.
Retirement funds are intended for people retiring at the normal retirement age, not for early retirement. Depending on the investment vehicle you chose when you started saving and how mature your retirement fund is when you actually retire, you’ll probably have to pay early withdrawal fees.
For example, if you purchased a 10 or 20 years deferred annuity but want to make a withdrawal within the growth period, most insurers will charge a strong fee that becomes lower the more you wait.
Additionally, if you paid for your annuity with money from a 401(k) and plan to withdraw before turning 59½, you’ll have to pay an early withdrawal penalty fee of 10% on your withdrawal to the IRS.
So, retiring early can be quite expensive if not done right.
#8 It will take time for you to adjust to your new retirement life.
One of the reasons for retiring early is to be free of the routine lifestyle when you were still clocking a nine to five. This will obviously change once you retire, and adjusting can be challenging. It varies with every person—for some, it might only take a couple of days; for others, it could be a couple of months, maybe even a year.
You mustn’t feel pressure to adjust, though, because you have all the time in the world to change your routine or even abandon the thought of having one. Allow yourself to make the transition no matter how long it takes because deadlines are but a thing of the past when you retire early from work.
#9 Your definition of “early” retirement depends entirely on you.
Unlike the normal retirement at a qualifying age—usually 60 years and older—early retirement depends entirely on your own timeline. This means that you do not have to give in to any external pressures and make the call when you feel you can finally afford it.
If early retirement for you is not having to work by the time you turn 30, then you can do so when you reach that age. You just have to make sure that you have planned your whole life ahead, not just in terms of money, but in terms of the things you want to do.
That’s also your call to make; you are the only one to blame if everything goes awry and retiring early does not work out for you. It is a double-edged sword, but for the most part, it’s the first manifestation of your freedom.
#10 Early retirement doesn’t always work.
Pun aside, early retirement is not everyone’s cup of tea, and even if it were, it might not be the best option for everyone. At a superficial level, leaving your work while you’re still young sounds like a promising dream for everyone. However, it may entail long-term consequences that might not sit well with some. Aside from the financial problems that may arise, there’s also the possibility of losing control over your life.
Early retirement does have its perks. You can give attention to things you had not paid any mind to when you were still working; take the time to rest; enjoy your favorite hobbies when you’re young instead of delaying them until you can’t enjoy them anymore, and you can have fun in general.
But if you have all these things checked and you’re still asking yourself, “what’s left for me to do?” it might be a sign that retiring early might not have been the best decision to make.
This is a consequence of our needs and priorities, which are summarized in Abraham Maslow’s pyramid. Retiring early can eliminate an important source of satisfaction of our “belongingness” needs because when working in any organization, we feel we belong to something bigger.
It can also hinder our ability to grow and find self-fulfillment, which can leave us in a state of disappointment when we reach the end of our lives.
#11 Early retirement gives you a go signal for a fresh start.
Just as there is no right time to retire early from work, there is also no limit as to when you wish to do a start-over with your life. One of the best things about retiring early is you can restart everything and live life with a clean slate. This time, you have both the control and resources you need to make your life what you want it to be.
In addition, you also get to decide what path you will take after retirement — do you want to go back to school? Set up an art studio? Focus on your passion for baking? You can do any or all of these things when you retire early. You don’t have to explain why, and all you need to do is live your life the way you want to live it.
#12 You will have to weigh out your options.
While you think that you virtually have full control over your life, early retirement will still compel you to weigh your options and make wise decisions to make sense of your retirement. You’ll have to let go of some opportunities to utilize others, and the choice of prioritizing your happiness will also sometimes require you to trade off some other form of convenience.
The bottom line
Early retirement is a decision that is yours and yours to make, and if you have no idea of what is in store for you when you decide to do it, then the things discussed above will give you a glimpse of the reality that it entails.
Like many other things in the world, retiring from work at an early age comes with certain perks and drawbacks, and you must consider them both before making your decision. It is up to you to decide the terms and date of your retirement, but how it plays out will ultimately depend on your choices once you take that leap of faith.
