Because people are now living longer, it may make sense to think about waiting until the age of 70 to retire. Even if you decide to retire before age 70, you'll want to know about the seven money things that change about the time you turn 70.
- Your Social Security benefits stop growing at age 70.
- Make sure you take required minimum distributions (RMDs) after age 72 to avoid taxes on the amount that you didn't take.
- Look into annuities and mortality credits if you are likely to live longer.
- Transfer your investments to ones that are less risky, and look into a reverse mortgage.
Social Security Benefits Stop Growing at 70
Up until age 70, delayed retirement credits are added to your Social Security (SSA) benefits. As a result, there is a lot to be gained by putting off your SSA payments.
If you defer your SSA payments until the age of 70, you'll get 132% of the monthly benefit because you delayed getting payments for 48 months. Still, there is no reason to wait past age 70 to start getting your payments. For some couples, for instance, there can be much to gain by having the spouse who earns the most money delay the start of their SSA payments until they reach age 70.
The higher benefit amount will then go on in the form of a survivor benefit for the longest spouse to live and can provide inflation-adjusted income for life.
Required Minimum Distributions Start at Age 72
IRS rules state that you must start taking money from your retirement accounts, such as IRAs or 401(k) plans, by the time you reach age 72. Although many people wait until they are required to take these payments, it does not always make sense.
If you had lower income years before reaching age 72, it could make sense to withdraw money from retirement accounts and pay little to no tax. You will have to run a tax projection each year to decide what might be best. Still, at 72, you will have to start taking withdrawals or RMDs from your IRA, SEP IRA, Simple IRA, and 401(k).
It's vital to note that if you don't take your RMD at 72, the IRS will levy a tax on the portion that you don't withdraw. The IRS reports, "You may have to pay a 50% excise tax on the amount not distributed as required." Roth IRAs do not have to take an RMD.
Guaranteed Income Choices Could Be an Option
The longer you live, the more money you are going to need. If you have good genes and live a healthy life, then you may want to look into guaranteed income choices that provide income for life. Some of these choices, such as immediate annuities, become a good choice at age 70, but you must do your research and contact a financial planner because there are pros and cons to all annuities.
Mortality Credits Reward You for Living Longer
Retirement income sources like immediate annuities give you access to the "mortality credit." This means that some people who buy annuities may die before expected, so people who live longer than expected get that credit. This type of product becomes a good option around age 70 and can ensure that you will not outlive your income.
Reverse Mortgages Could Make You Money
Reverse mortgages are a financial tool to think about at age 70 and beyond. They can allow you to use the equity in your home for income while you keep living in it for as long as you want. A reverse mortgage can be an option that gives you an income and lets you stay in your house. And despite what you may have heard, the bank cannot take your house with this type of mortgage.
Investments Should Be Less Risky
If you are going to retire at 70 and need income from your savings and investments, you will need to learn which of them can bring you the amount of income you need. It is not the time to take risks. You need this money to last the rest of your life.
One option is to use safe investments, which may only pay a modest income, but your principal amount will be safe. For instance, you could use a bond ladder. A bond ladder is where you purchase bonds with staggered maturity dates across a certain time, like a ladder. You would withdraw the funds when a bond matures so that you will have income from the bond.
You could also build a portfolio by going by a set of withdrawal-rate rules. One is the 4% rule, which allows you to take out 4% of your starting balance each year for income. The thought behind the rule is that by taking out only 4% each year and investing the rest of your savings, you won't run out of money when you retire.
You may want to seek out the services of a retirement planner to help you figure out what is best for you.
Keep Documentation Handy
Age 70 is also a good time to make sure you have a medical emergency plan in place. It can be as simple as having a set of written instructions for a trusted family member or friend.
You'll want to make sure that you have named a trusted person to manage your affairs should you become unable to do so. It is done through a trust or with a durable power of attorney and a health care power of attorney. Be sure to review your beneficiary list and other vital estate planning items like a will or trust.