CONSUMERS

More tips for tweaking your retirement plan

Russ Wiles
The Republic | azcentral.com
Jar with label Retirement Plan and money on the table.
  • All sorts of factors can trip up someone's retirement planning, including becoming newly single
  • Another factor that can erode retirement preparations is failing to invest in appropriate accounts
  • Many people take Social Security benefits early but that's risky for those with long life expectancy

To the extent some people fall short in retirement, the causes are usually attributable to a lack of planning or foresight. Not saving enough, starting too late, withdrawing funds prematurely or investing too conservatively — those are the primary culprits.

But other, less obvious pitfalls also can trip the unwary, such as transitioning from married to single life, either as the result of a spouse's death or divorce. Married couples typically are better off financially than singles, and this spills over to retirement.

The death of a spouse can spell financial hardships in retirement, though there are ways to minimize this, reported Tim Steffen of Baird's private-wealth management group in a recent commentary.

One option is to coordinate Social Security benefits, recognizing that these monthly payments will rise in value the longer you delay taking them. A surviving spouse can keep his or her own benefit or choose his or her spouse's, whichever is larger. While both spouses are still alive, a couple thus can maximize the eventual survivor benefit by having the higher-earning person delay taking benefits.

Divorce can be even more financially traumatic. "Divorce generally cuts assets right down the middle while nearly doubling expenses," wrote Steffen. Demographers lately have noted a rise in the rate of divorce among people in their 50s and older.

For divorcees who continue to work, one way to get your retirement planning back on track is to contribute more to retirement accounts if you can afford to, including taking advantage of the higher catch-up contributions available to workers 50 and up. If you were married 10 or more years, it might be wise to take advantage of a rule allowing you to apply for half of your ex-spouse's Social Security benefit, if it's larger than your own benefit. But perhaps the key strategy for divorcees, according to Steffen, is simply to cut your expenses until they're aligned with your  newly reduced income.

Other retirement obstacles cited in the Baird report include losing a job, investing too conservatively, withdrawing too much money from your portfolio during stock-market slumps and being too generous when it comes to giving away money to children, grandkids or others.

Retirement effort breeds confidence

To no great surprise, people who have opened retirement accounts and contribute money to them are more confident about having ample assets when they reach retirement age than those who lack pensions, 401(K)-style plans or Individual Retirement Accounts. In fact, they're more than twice as likely to face retirement with greater confidence, according to a new Retirement Confidence Study from the Employee Benefit Research Institute and Greenwald and Associates.

Overall, 60 percent of American workers say they're somewhat or very confident about accumulating enough money to support a comfortable retirement, down from 64 percent in the 2016 survey but up from 52 percent in 2012.

Speaking of IRAs, relatively few Americans contribute new money to these accounts, especially the traditional tax-deductible variety. In a separate study by financial firm TIAA, nearly half the respondents said they don't invest in IRAs because they lack the money to do so. But nearly the same proportion said they don't understand the accounts or consider them too complicated, given all the income-eligibility and other rules. Retirement-plan simplification efforts could go a long way toward encouraging more people to save and invest.

Social Security and longevity

It's a well-established fact that the sooner you start collecting Social Security retirement benefits, the lower the monthly payments. Still, many people base their timing decisions on current cash needs and other transitory factors rather than the big one, longevity.

Participants may start tapping Social Security retirement benefits as early as age 62, or they can wait as late as 70. They also can take benefits upon reaching full retirement age, which varies from 66 to 67 for most people now in the workforce. Benefits taken before full retirement age get reduced by roughly 6.25 percent for each year prior, notes Jeremy Kisner, a certified financial planner at Surevest Wealth Management in Phoenix. Conversely, benefits increase 8 percent for each year you wait beyond full retirement age, until 70.

Most people start benefits early, which can be smart if you are in poor health or don't have a history of lengthy family longevity, Kisner notes. But otherwise, you might want to delay, especially if there's a good chance you or your spouse might live much longer than average. According to the Social Security Administration, men reaching 65 today will live on average a bit beyond age 84, while women will make it almost to 87 on average.

While longevity for individuals is impossible to predict with certainty, you often can get a good idea based on your parents' situation and that of blood-relative aunts, uncles and grandparents. Given that most people start Social Security well before full retirement age, it means many are shortchanging longevity in the planning process.

Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.