Episode 8: Retirement Strategies for People Over 40

About the Episode

On this episode of Making it Count, hosts Cristina and Will tackle retirement and investing with guests Rob Mazur and John Stanton of CUNA Brokerage Services. Discussing retirement plans for those who are over 40, listeners will get the scoop on how to catch up on your savings, Social Security and some money saving myths that may hinder you from saving what you need for retirement. Is retirement out of the question if you start saving later in life? This episode of Making It Counts breaks it down for you.

3:00

Cristina asks Question 1: “What if you’re 40 or over and don’t have any retirement savings? Does that mean you’ll never be able to retire?”

Rob answers: “It’s never too late; the best time to start is now. You might not have the time advantage that younger savers do, but you have to make a plan for the future – no matter your age.”

Learn more: 5 Recommended Retirement Savings Plans (With Calculator)

3:30

Will asks Question 2: “What’s the one retirement opportunity you think people don’t take advantage of when they need to jump-start their retirement savings?”

John answers: “I think it’s not being honest with themselves in regards to their budget. We have needs and wants in life – we have to focus on the needs and put the wants off, especially if you have a late start to saving for retirement. The more you can put away each month, the better. And then taking advantage of catch-up contributions.”

Cristina asks a follow-up question: “What is a catch-up contribution?”

Rob answers: “It’s a formal term within an IRA or employer-sponsored plan. Catch-up contributions don’t become accessible until age 50. The goal here is to ramp up and max out what you can put away each year.”

John also answers: “Yes, when you’re 50, you can start putting away an additional $1,000 to an IRA and an additional $6,500 to a 401(k).”

Learn more: How to Create a Retirement Expense & Budget Worksheet

5:05

Cristina asks Question 3: “Let’s talk about Social Security for a minute. Do you rely on your Social Security for retirement?”

Rob answers: “Social Security is going to be there when you retire. Even if no legislation passes to revamp the program, it will still fund out at 75% of the current benefit levels. It’s not going away. By 2090 is when it will hit critical mass – again if nothing is done to fix it before then.”

6:15

Will asks Question 4: “What’s the total amount people should plan to save for retirement?”

John answers: “It really comes down to what you want your lifestyle to be in retirement. So people are more frugal than others; those people will have an easier time saving because they won't have to save as much. Other people what a more lavish lifestyle and they are going to have to save more to achieve their goals.”

Learn more: Retirement Investing 101: What's the Average 401k Balance?

6:40

Cristina asks Question 5: “What money saving myth do you think does the most harm when it comes to saving for retirement?”

John answers: “The biggest myth we hear is that ‘My money is safe. I have all my money in CDs and savings accounts, so it’s safe.’ But we like to turn this around on them by having them think about inflation. The cost of goods goes up on average 3% to 5% per year, but interest rates for CDs and savings accounts can be as low as 0.1%. So in ten years, you’re looking at cost of goods being 30% to 50% more – if your money didn’t make that same return over that period of time, you’ve lost money. That $100,000 will only buy $70,000 worth of goods 10 years later.”

Rob also answers: “I think the other myth is that the government is going to take care of you. Social Security is important, but it’s just one leg of the stool – you shouldn’t rely on it for all your retirement savings needs. In today’s day and age, most people don’t have a pension – some do, like teachers – but most private sector employees don’t have a pension to fall back on. Therefore, the burden falls on you to save.”

Learn more: 7 Retirement & Investment Myths that are Costing You Money

8:50

Will asks Question 6: “Is it a good idea to work with a financial advisor on investment strategies or should you go at it alone?”

John answers: “It’s always good to seek information from a professional. When you’re feeling sick, you see a doctor. It’s the same thing here. If you come speak to us at CUNA, we offer free advice. You don’t have to take the advice, so there’s nothing to lose.”

Rob adds: “I like to tell people that we are another set of eyes looking over your finances. I work with many people reaching retirement age each week. I’ve seen the mistakes people make and I like to use those examples to help others. You can, of course, turn to the internet to learn a lot of the same things, but then I’ve seen clients end up with paralysis by analysis because of the overwhelming amount of information available.”

John follows up with: “The biggest thing we hear sometimes is that people just don’t have time. I always kick it back to them and say think about you going on vacation. How much time do you take to plan out a week’s vacation? And you’re going to be retired for how long? How much time do you take planning that? Spending five or ten minutes is really all we need to get an idea of what you are trying to do.”

Learn more: 6 Benefits of Hiring a Fiduciary Financial Adviser

12:30

Cristina asks Question 7: “What do you suggest for someone who is starting to save later for retirement?”

Rob answers: “If you’re starting later, you need to adjust one of three things: either work longer, be more aggressive and take more risk or save more money each month. For most people it’s a little bit of all three. It might be working two more years than you’re expecting to, trimming down your budget to save a little more each month and then also taking a little bit more risk in your investments. That last one is a little more difficult for most people. I caution people to not take more risk than what they’re comfortable with. It can be difficult to work with, so the first two areas are the ones we implement the most.”

John adds: “If you’re losing sleep at night, you’re being too risky with your investments.”

Learn more: 6 Best Practices for Asset Allocation in Retirement

14:00

Will asks Question 8: “If you’re behind on saving at 40, is retiring early out of the question?”

John answers: “It depends on your income and how you want to live in retirement. If you’re going to be frugal, you may have a chance at doing that. If you’re looking for a more lavish lifestyle, more than likely not. It would be hard.”

Rob adds: “The other thing we talk about with retiring early is healthcare. As the current system stands, Medicare doesn’t start until age 65. If your goal is to retire at 62, how will you fund your health insurance for that three year gap? Some plans have a monthly premium of $800, which is $9,600 per year. Where will that money come from? Does working a few more years make it more palatable? Health insurance is the big challenge for people. There are ways to make it happen, but it’s something people forget about when they talk about retiring early. That’s the point in time when you really need health insurance benefits, so how will you afford them?”

John also adds: "Studies have shown that between the ages of 65 and 85, the average health costs come out around $300,000. Just shows you have to plan for those costs as well."

15:55

Cristina asks Question 9: “A lot of people think that they don’t have to pay for anything if they retire with no debt and no mortgage, but that’s not true. Are there any other retirement myths that we should plan for?”

Rob says: “The other overlooked item is also health related – end of life care. The average cost for a private nursing home is $280 a day right now. That’s a significant number and most people don’t have that built into their plan.”

“The other myth is thinking the government will take care of you. Qualifying for Medicaid is a plan, but not a preferable one. A single person can only have $2,000 in assets to qualify. Slightly higher if you’re married, but not a lot. A lot of people can’t completely fund this out of pocket, but being able to mitigate the cost is really important and a huge risk a lot of people just don’t think about.”

“Another thing people overlook is planning for a disability. Think about if something happens and you can’t work to complete this plan, how will that fit into your plan? How do you protect your earning power?”

John chimes in: “Especially in a single income household. If a major income earner is gone, can you live the same lifestyle? It’s about putting a plan down on paper and making it real.”

23:35

Will asks Quick Question 1: “Is one retirement account enough?”

Rob answers: “It can be. However if you’re trying to catch up, you may need a combination between an employer plan and an individual retirement account.”

23:55

Cristina asks Quick Question 2: “Are there benefits to working past a retirement age?”

John answers: “Absolutely. The longer you can work and still have an earned income means you don’t have to touch Social Security sooner. Hypothetically, you can touch Social Security as early as 62 and full retirement age is 67. You can leave it alone until 70 and have it grow at 8% per year. If you can, you’re healthy, and you enjoy your job – go for it.”

24:25

Will asks Quick Question 3: “What is a quick piece of retirement related tax advice people should know?”

Rob answers: “One of the biggest things some people miss are the retirement savings credits. You can get the Retirement Contribution Savings credit which is income based. If you earn too much, you may not qualify. Saving on a tax favored basis is always better than doing it on a non-qualified, taxable account. It can add up to 10's, if not 100's, of thousands of dollars.”

Learn more: Who Can Claim the Retirement Savings Contribution Credit?

25:00

Cristina asks Quick Question 4: “Should you stop investing in your retirement after you retire?”

John answers: “You need to earn income to be able to contribute to individual retirement accounts, but I would say no. You always want to have it growing. In the long run, you should sit down with a professional advisor to make a plan.”

25:35

Will asks Quick Question 5: “What should people take away from this podcast?”

Rob answers: “The two biggest things for me are that: 1) It’s never too late. It’s never hopeless. Doing something is better than doing nothing. And 2) The other thing is to look globally. There are hidden things that we don’t always think about and we can’t assume that best case scenario will happen. Plan for contingencies. Don’t dwell on them but know that they’re out there.”

26:25

Cristina brings up some financial news about the retirement, stating “In December, the SECURE Act was signed into law. This was introduced to help people save for retirement. The bill removes the age limit restriction on IRA contributions, expands access to annuities and raises the age for required minimum withdrawals. Talk to us about what this all means and how it helps us.”

Rob explains: “It used to be that at age 70 ½, you weren’t able to continue making contributions to a traditional IRA. That’s been lifted so if you continue to work past age 70 ½ and have earned income, you can continue to make IRA contributions. You also used to have to begin withdrawing money from your IRA by age 70 ½. Now the age to begin withdrawals is age 72. The Stretch IRA provision where you could take distributions from an inherited IRA over life expectancy has shortened to a ten year period for most people. Those are the three biggest takeaways.”

It’s never too late to start saving for retirement, but remember to make a plan for unexpected health-related contingencies. Make sure to stay up to date with changes in the market or laws that may affect how you plan for retirement. For more information and tips on how to start saving, check out our retirement goal setting guide here.