Savers under the age of 40 can open a pension or a Lifetime Isa, and use them to save for retirement with help from the taxpayer. In an ideal world, having both would be the best option, but if savings are limited there are clear advantages in maximizing workplace pension savings first.
Higher rate taxpayers will also get a bigger bonus from pension saving. That said, savers should consider both options. There are a number of important factors to take into account when choosing how best to boost retirement savings with taxpayer handouts.
What to weigh up when deciding how to save for retirement
1. Free money from your employer
For employees, joining a workplace pension offers the added advantage of a tax-free employer contribution. Employees earning over £10,000 a year, between the age of 22 and 66, must be offered a pension scheme, with the employer paying 3 per cent of earnings. The employee pays 4 per cent and tax relief adds a further 1 per cent.
Many employers offer more generous schemes and not joining or opting out is giving up ‘free money’. Employers cannot pay into a Lifetime Isa.
2. Higher earners benefit from pensions
Those paying tax at a higher rate get a bigger bonus from pension savings. A higher rate taxpayer sees £6 saved grow to £10, and for a top rate taxpayer, £10 saved costs just £5.50.
Should you open a Lifetime Isa?
How they work, and what’s on offer to young savers hoping to get on the housing ladder? Read a This is Money guide here. Taxpayers resident in Scotland can gain an extra 1p in the pound as they pay tax at 21 per cent if income is over £25,159, 41 per cent if income exceeds £43,430, and 46 per cent if income is over £150,000.
For nil or basic rate taxpayers, the Lifetime Isa and pension offer the same taxpayer bonus of 20 per cent, so that £8 saved is worth £10 invested. Both offer the same tax-free roll up of funds, with no tax to pay on fund growth or income.
When the money is paid out the Lifetime Isa has the advantage of offering a tax-free income, whereas 75 per cent of the pension paid out is treated as taxable income.
3. Pending (and possible) rule changes
There is speculation the Budget on 3 March could end higher rate tax relief for pension savers. Should this happen then or in the future it will increase the attraction of the Lifetime Isa, which pays a tax-free income in retirement.
This may increase further in line with the rising state pension age 10 years later. Lifetime Isas can pay out from the age of 60. A narrowing gap between the age at which savers can gain penalty-free access makes the choice less clear, especially as Lifetime Isas pay out tax-free but pensions are partly taxable.
4. What if you have no earned income
Those without earnings can save £4,000 a year into a Lifetime Isa. However, if they have no earned income, they can save only £2,880 into a pension, so the taxpayer subsidy is up to £720 a year in a pension but up to £1,000 in a Lifetime Isa.
5. What if you do earn income or profits
Where more than £4,000 is available for saving long term, those with earnings or self-employed profits can save in a pension the lower of their earnings/profits in the year or £40,000 into a pension, but only £4,000 into a Lifetime Isa.
6. Age restrictions
Lifetime Isa savers can pay in and earn the bonus only between the age of 18 and 50. Pension savers can start at birth and continue until 75. Starting a Lifetime Isa before the age of 40, then funding a pension from the age of 50, could provide a good combination of tax-free income from the Lifetime Isa and taxable income from the pension.
If the pension and other sources of income fall below the personal allowance for income tax (currently £12,500), all the income could be tax-free.The Lifetime Isa offers access before the age of 60, with a lower penalty than applicable if a pension was accessed prior to age 55 (57 from April 2028).
7. Leaving funds to loved ones
Lifetime Isas cannot be continued beyond death and form part of the taxable estate.Pension funds can be left to others to continue, with tax-free investment, and do not usually form part of the taxable estate.
8. Choice of products
It is easy to open a pension, or simply not opt out if your employer auto enrolls you into one. Choice of Lifetime Isa providers is more limited and most offer only a cash deposit option. For long term saving for retirement a stocks and shares Lifetime Isa has more potential to maintain its purchasing power alongside inflation, but could go down in value in the short term.We run down what’s available here.
Happiness, experts say, is U-shaped: generally speaking, we are happy/full of life satisfaction as young adults but, as we reach middle age, we become less satisfied, with a trough in one’s early 50s; from this trough we rebound to ever-increasing satisfaction levels as we age. It’s remarkable, really, considering the physical infirmities we face, plus financial worries, loss of loved ones, and more. What explains this? We become wiser and we are able to see all of life’s ups and downs with a greater sense of perspective.
But what if that’s not true?
A new working paper by Peter Hudomiet, Michael D. Hurd and Susann Rohwedder, researchers at RAND Corporation, suggests an entirely different answer: older individuals have greater life satisfaction because the less-satisfied folk have been weeded-out. And by “weeded-out” I mean that they’re dead or otherwise unable to reply, because the likelihood of dying is greater for those who have less life satisfaction. When they apply calculations to try to strip out this impact, the effect is dramatic: rather than life satisfaction climbing steadily from the mid-50s to early 70s, then remaining steady, they see a steady drop from the early 70s as people age.
Here are the three key graphs (used with permission):
First, life satisfaction plotted by age without any special adjustments:
And, third, the same life satisfaction graph, adjusted to take into account the impact of the disproportionality of deaths:
In this graph, the blue line represents the unadjusted outputs from their calculations, the orange line is smoothed, and the grey line adds in demographic, labor market and health controls, to strip out the impact of, for example, people in poor health being less satisfied and try to isolate the impact solely of age.
Here are the details on this calculation.
The data they use for their analysis comes from the Health and Retirement Study (HRS), a long-running survey of individuals age 51 and older at the University of Michigan, sponsored by the National Institute on Aging. It is a longitudinal study; that is, it surveys the same group of people every two years in order to see how their responses change over time, adding in new “refresher cohorts” to keep the survey going. The survey asks about many topics, including income, health, housing, and the like, and in 2008, the survey also began to ask life satisfaction, on a scale of 1 to 5 (”not at all satisfied” to “completely satisfied”).
One simple way of analyzing the data is to look at how life satisfaction ratings vary based on survey participants’ characteristics. The average reported life satisfaction of those between ages 65 – 74 is 3.91, just slightly below “4 – very satisfied.” But those who rate their health as “poor” average out to 3.13, or not much more than “3 – somewhat satisfied,” and those who rate their health as “excellent” average to 4.34. Those who have 2 or more ADL (activities of daily living) limitations some out to an average of 3.32 vs. 3.97 for those with no such limits. Those who are in the poorest quarter of the survey group come out to 3.7 vs. 4.07 for the wealthiest quarter. (See the bottom of this article for the full table; this table and the following graphs are used with permission.)
But here’s the statistic that throws a monkey-wrench into the data:
“On average, the 2-year mortality rate [that is, from one survey round to the next] is 4.4% among those who are very or completely satisfied with their lives, while it is 7.3% (or 66% higher) among those who are not or somewhat satisfied with their lives.”
As a result, “those who are more satisfied with their lives live longer and make up a larger fraction of the sample at older ages.”
Now, this does not say that being pessimistic about one’s life causes one to be more likely to die. Nor does it say that this pessimism is justified by being in ill-health and at risk of dying. But this statistical connection, as well as further analysis of survey drop-outs for other reasons (such as dementia) is the basis for a regression analysis which results in the graph above.
What’s more, the original “inventor” of the concept of the life satisfaction curve, David Blanchflower, published a follow-up study just after this one. One of their key concepts is the notion of using “controls” to try to identify changes in life satisfaction solely due to age rather than changes in income over one’s lifetime, for example, or other factors, and there has been extensive debate about whether or to what degree this is appropriate, given that the reality of any individual’s life experience is that one does experience changes in marital and family status, employment status, and the like.
Having received pushback for this concept, they defend it but also insist that the U-shape holds regardless of whether “controls” are used or not. At the same time, Blanchflower is quite insistent that the “U” is universal across cultures, though (see my prior article on the topic) it really seems to require quite some effort to make this U appear outside the Anglosphere, which is all the more interesting in light of the John Henrich “WEIRDest people” contention (see my October article) that various traits that had been viewed by psychologists as universally-generalizable are really quite distinctive to Western cultures and, more distinctively, the United States.
But here’s the fundamental question: why does it matter?
On an individual level, to believe that there is a trough and a rebound offers hope for those stuck in a midlife rut. It’s a form of self-help, the adult version of the “it gets better” campaign for teenagers.
On a societal level, the recognition of a drop in life satisfaction for the middle-aged might be explained, by someone with the perspective of the upper-middle class, as the result of dissatisfaction with a stagnating career, failure to achieve the corner office, the challenge of shepherding kids into college, and the like. In fact, when I wrote about the topic two years ago, that’s how the material I read generally presented the issue.
But Blanchflower’s new paper recognizes greater stakes: “These dips in well-being are associated with higher levels of depression, including chronic depression, difficulty sleeping, and even suicide. In the U.S., deaths of despair are most likely to occur in the middle-aged years, and the patterns are robustly associated with unhappiness and stress. Across countries chronic depression and suicide rates peak in midlife.” (In the United States, among men, this is not true; men over 75 have the highest suicide rate.)
And what of the decline in life satisfaction among the elderly?
The premise that the elderly become increasingly satisfied with their lives as they age is a very appealing one, not just because it provides hope for us individually as we age. It serves as confirmation of a more fundamental belief, that the elderly are a source of wisdom and perspective on life. Although it is Asian cultures which are particularly known for veneration of the elderly, the importance of caring for those in need is just as much a moral imperative in Western societies, even if without the same sense of “veneration” or of valuing them to a greater degree than others in need.
Consider, after all, that the evening news likes to feature stories of oldsters running marathons or competing in triathlons or even just having a sunny outlook on life; no one likes to think of the grumpy grandmother or grandmother from one’s childhood as representative of “old age.” In this respect, “old folks are more satisfied with life” provided an easy to make the elderly more “venerable.” Hudomiet’s research might force us to think a bit harder.
Yes, I’m a nerd, and an actuary to boot. Armed with an M.A. in medieval history and the F.S.A. actuarial credential, with 20 years of experience at a major benefits consulting firm, and having blogged as “Jane the Actuary” since 2013, I enjoy reading and writing about retirement issues, including retirement income adequacy, reform proposals and international comparisons.
So, are you setting yourself up for true happiness as a retiree? Sure, you’re planning the money piece, and that’s important. But, there’s also the personal piece of the retirement equation that’s just as important as the money part. Read more: https://www.wesmoss.com/news/7-skills… The 4% Rule: https://www.wesmoss.com/news/the-new-… Retirement Calculator: https://www.yourwealth.com/retirement… Send me your questions directly at https://bit.ly/3dPKcvd (contact box in top right corner) You Can Retire Sooner Than You Think https://bit.ly/3kiRhXJ Money Matters with Wes Moss podcast https://spoti.fi/3jk9wL8 or on Apple Podcasts https://apple.co/3kwKvhj Twitter: https://bit.ly/2HqnWfe Facebook: https://bit.ly/3kvrHi4 Check out my website for more financial tools and articles: https://bit.ly/3dPKcvd Please note, this information is provided to you as a resource for informational purposes only and should not be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
With unemployment at all-time lows, now might be the best time for you to be looking for a full-time job. The challenges, however, are greater if you’re over 50 years old.
According to data compiled by the U.S. Department of Labor, Bureau of Labor Statistics, on average it takes those 55 to 64 two weeks longer to find a job compared to those 20 years and older. (The news is worse if you’re 65 and older, where this average duration of unemployment is 10 weeks longer.)
It seems the idea of early retirement hasn’t caught on with those in their 50s (and even beyond).
“Our research shows that experienced workers are staying on the job longer or looking for a job for two reasons,” says Susan K. Weinstock, Vice President, Financial Resilience Programming at AARP. “Financially, they need the money, and, secondly, they like their job and find it fulfilling and want to keep working.”
Bankrate regularly surveys workers regarding their financial circumstances. Its data confirms what AARP found for those working well past age 50.
“When Bankrate asked Americans who were neither retired nor permanently disabled about their retirement savings, more than half said they were behind where they should have been,” says Mark Hamrick, Senior Economic Analyst at Bankrate.com. “For members of Generation X (age 39-54), the percentage was 63% and Boomers (age 55-73), 54% said they were behind on their retirement savings. No doubt many people who would otherwise be candidates to retire seek to remain in the workforce because they feel they need income, or to further boost their savings. Others may choose to work as a means of remaining engaged and active.”
If you’re like many older workers, you may prefer to retain your current position. But what if your present employer can’t accommodate you? It may have been decades since you last tried to look for a new job. What has changed since then? What do you have to do different today to land full-time employment?
Bryan Zawikowski has been a recruiter for 25 years and is the vice president and general manager of the military transition division for Lucas Group. Forbes ranked Lucas Group as one of the top 10 executive search firms in the nation in 2019. Zawikowski’s team works with many people who find themselves either changing careers or looking for new jobs later in life. He shares the following advice:
“What are best practices?”
· To thine own self be true: “Don’t try to hide your age. It doesn’t work, and you end up looking either vain or foolish—maybe both.”
· Polish up your online presence: “Your LinkedIn profile should be very professional, including the photograph.”
· Emphasize your real-world experience: “No ‘functional’ resumes. They end up in the trash.”
· Brevity is the soul of wit: “Maximum 2-page resume. The further back in your work history you go, the less detail there should be.”
“What are the easiest ways to make it happen?”
· Recalculate: “Be financially prepared to take a step back in compensation (either scale back your lifestyle or be prepared to dip into savings if need be).”
· Re-calibrate: “Be emotionally and mentally prepared to work for someone younger and perhaps more talented than you.”
· Circulate: “Network with former classmates, former work colleagues, friends and acquaintances that know something about your desired career path.”
· Captivate: “Have a GREAT story about why you are interested in this new career field and why you’d be good at it.”
“What are the do’s and don’ts?”
· DO something you enjoy: “Pick a career that you are really into, something that energizes you and somewhere you look forward to going to work most days.”
· DO maintain your health: “Stay physically active. You don’t have to be a marathon runner, but do something to keep your energy level up.”
· DO continue to learn: “Read as much as you can about your new career field.”
· DON’T lie: You can’t “pretend to be an expert at something just because you were good at something else.”
· DON’T assume the status quo: You’ll be disappointed if you “think you will be able to make a lateral move from where you are in your current career field.”
· DON’T be unrealistic: You’ll only hurt yourself more if you “sacrifice more than you can afford to in terms of compensation. Retirement isn’t too far away and you don’t want to jeopardize that.”
You are the master of your own destiny. If you want to find a job, you can. No matter what your age.
I am a nationally recognized award-winning writer, researcher and speaker. Among the seven books I’ve written include From Cradle to Retire: The Child IRA, Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort, and A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, I appear regularly in the national media. A “parallel” entrepreneur, I’m actively running a handful of small family-owned businesses, so I have hands-on experience on the things I write about. A trained astrophysicist, I hold an MBA and have been designated a Certified Trust and Financial Advisor. I invite you to share your thoughts and story ideas with me through my web-site, email, or any of the usual social media platforms whose links appear below.
It’s the biggest shopping day on the planet. Alibaba alone chalked up $38 billion in sales for 2019. No, it’s not a religious, patriotic holiday, or even the one time biggest online shopping day of the year, Black Friday – it’s Singles’ Day in China and much of the world. But what’s good for Alibaba, may not be good for your retirement and many industries.
Started as Bachelors Day by students at China’s Nanjing University in 1993 as a kind of ‘anti-Valentines’ day to celebrate being single, the day evolved into Singles’ Day. November 11 or 11/11 was chosen because it provided the powerful symbolism of four 1’s.
And, while the celebration of being single may have begun in China, the lifestyle and business of ‘singledom’ is spreading fast. Retailers in Southeast Asia, Europe, and North America are all riding the singles wave. According to Forbes writer Sergei Klebnikov, Adobe projects that nearly 25% of retailers plan to offer a Singles Day special. Amazon, Apple, Bed Bath & Beyond, Estee Lauder, Foot Locker, Happy Socks and countless other retailers are all too happy to jump on the singles lifestyle bandwagon.
But, there is more to Singles’ Day then a retail push. Singlehood points to a larger disruptive demographic trend that is shaping lifestyles, your retirement, and the even the markets we invest in today.
According to Pew Research, 61% of young Americans under the age of 35 are without a partner. Up sharply from 33% in 2004. Likewise, the number of people living alone in Canada has doubled over the last three decades. In Europe more than half of the households in Paris, Munich, and Oslo are households of one. Entire nations, such as Sweden and Denmark have more than half of their populations living alone.
So what might this new demographic landscape mean for lifestyles, retirement, and countless industries?
To continue the theme of Singles’ Day on 11/11, here are 11 questions about life tomorrow in a world of one.
1. Who will buy the homes of retirees today that are typically two, three or more bedrooms? Will homes with one bedroom become the new normal and homes with two bedrooms be considered a spatial luxury – and those with three-plus simply a waste? How might real estate developers rethink communities that are predominantly households of one?
2. How many wine glasses will you buy? Watch out household goods industry, rather, than buying a set of eight, or even four glasses, as well as all the other things that stock household cabinets and closets – we may buy only one or two of what we need. For those retirees thinking they are going to downsize by handing off that china set with service for 12 to their kids – good luck. As I observe in a previous article, noone wants your stuff.
3. Who will you buy luxury gifts for? Singles’ Day certainly shows that people are willing to buy things, but will they buy luxury? Will luxury brands begin crafting a new vision of the virtue of treating yourself in contrast to decades of sales based upon treating that special someone as well as marking engagements and anniversaries? Perhaps a whole new socially acceptable celebration of buying your own watch for your retirement will become a new normal.
4. Is a party of one the new normal for leisure? Will restaurants work harder to make a retired single more comfortable and not feel alone? Hotels, cruise ships, and theme parks have traditionally marketed to couples and families. What will leisure look like in a world of one?
5. Will being a pet parent mean more than ever? If a partner is not moving in, will pets become your significant other in youth and later life, thereby getting an even bigger boost of wallet share?
6. How will you share the burden? Managing a household has many moving parts. Typically tasks are split between a couple by conscious decision and often by default. Will retired singles over time learn to do it all, or will there be a growth industry for services once shared with that special someone?
7. Will there be even fewer children? The birthrate continues to tumble. The industrialized world, as well as many industrializing nations, are seeing a record drop in the number of children being born each year. Will the celebration of one, mean none?
8. Does singlehood provide greater career freedom? If there is only one person in a household, does that reduce the fear of losing a job or easily moving from one position that does not quite fit? Employers may find a new mobility in single employees who do not need to worry, nor manage, the financial risks of supporting multi-person household. However, will that newfound freedom in youth, present a longer-term financial risk in retirement for singles?
9. How will you finance retirement alone? Having a partner may increase household consumption and costs – but it may also provide more income and retirement savings. The longevity risk of ones life span outliving ones wealth span may be greater for lifelong singles.
10. Who will care for you? Most of us, at some point, will require care in older age. A partner, or adult child, typically provides family care to an elderly loved one. In a world where neither may exist, does that present a new challenge for individuals planning retirement – and perhaps a new demand for private and public services?
11. Does alone necessarily mean lonely? While it is possible to be alone, but not lonely, will a society with a growing number of households of one portend an even greater rise in the global epidemic of loneliness and social isolation for young and old alike?
I lead the Massachusetts Institute of Technology AgeLab (agelab.mit.edu). Researcher, teacher, speaker and advisor – my work explores how global demographics, technology and changing generational attitudes are transforming business and society. I teach in MIT’s Department of Urban Studies & Planning and the Sloan School’s Advanced Management Program. My new book is The Longevity Economy: Unlocking the World’s Fastest Growing, Most Misunderstood Market (Public Affairs, 2017) . Follow me on Twitter @josephcoughlin.
The age you land on for claiming Social Security could affect the monthly benefits you receive for life. Those benefits themselves are calculated by taking your average monthly earnings during your 35 highest-paid years in the workforce, adjusting them for inflation, and applying a special formula to that number. You’re then entitled to collect your monthly benefit in full once you reach full retirement age.
But you actually get an eight-year window to sign up for benefits that starts at age 62 and ends at age 70. In fact, you technically don’t have to sign up at 70, but delaying past that point won’t put more money in your pocket, so there’s no sense in waiting longer.
Currently, 62 is the most popular age for seniors to start collecting benefits. But if you’re contemplating that decision, you may be inclined to go with age 65. And while that could be a wise choice in some cases, here are three terrible reasons to land on 65 as your filing age.
1. You don’t know your full retirement age
You might assume that 65 is your full retirement age for Social Security purposes because that’s when you’re first eligible for healthcare coverage under Medicare. But for people born between 1943 and 1954, full retirement age is 66. For those born between 1955 and 1959, it’s 66 and a certain number of months. And for those born in 1960 or later, it’s 67.
If you sign up for Social Security at 65, you’ll automatically slash your monthly benefits between 6.67% and 13.34%, depending on your full retirement age, so rather than grapple with a lifelong reduction in Social Security income, commit your full retirement age to memory. Incidentally, in a recent Nationwide survey, only 24% of older adults knew what their full retirement age was, so if you’re nearing retirement, be sure to get that number straight.
2. You’re worried you won’t get Medicare coverage
It could be the case that you want to start getting Medicare benefits at 65 and aren’t ready for Social Security — but you sign up for Social Security at that age anyway because you’re convinced your Medicare coverage hinges on it. In reality, though, you can be on Medicare for years before claiming Social Security, and it won’t impact the level of care you receive.
The only drawback to signing up for Medicare before Social Security is that you won’t have the option to pay your Part B premiums directly from your Social Security benefits. Not only does that mean you’ll need to take that step yourself, but it also means you don’t get protection under Medicare’s hold harmless provision. This provision effectively caps the extent to which your Medicare premiums can rise from year to year when you’re on Social Security, because an increase in Part B can’t cause your monthly benefit to go down.
In other words, if your annual cost-of-living adjustment raises your monthly Social Security benefit by $12, but Medicare premium costs rise by $13, you’re only liable for the extra $12. Still, the reduction in benefits you’ll face by claiming Social Security early will generally well outpace any increase Part B throws at enrollees, so if you’re ready to sign up for Medicare at 65 but don’t need your Social Security benefits just yet, don’t feel compelled to claim them.
3. You’re scared Social Security is running out of money
There are rumors abounding that Social Security is on the verge of bankruptcy, but actually, that’s far from true. Social Security gets its funding from payroll taxes, so despite the program’s financial woes, it’s not in danger of going away. Right now, the worst-case scenario is a potential cut in benefits in 2035 to the tune of 20%, but that assumes lawmakers won’t step in and prevent that from happening, which many are invested in doing.
Therefore, don’t file for Social Security at 65 because you’re worried that by waiting, you’ll risk not getting paid any benefits at all. That scenario just isn’t on the table, and if you file at 65 rather than wait until full retirement age or later, you’ll risk losing out on a substantial amount of monthly income for life.
Claiming Social Security at 65 isn’t always a bad idea, and with regard to reducing benefits, it doesn’t cause nearly the same extreme hit as filing at 62. But if you’re going to sign up for Social Security at 65, make sure you’re doing so for the right reasons, and not because you’re ill-informed or are buying into myths.
The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
https://socialsecurityintelligence.com | Not everyone needs to delay filing for SS. There are some cases where filing at the earliest eligible age makes the most sense. A lot of the content that you find online will make the case that filing early for social security benefits is always a bad idea. They’ll say things like, “you should always wait until you’re full retirement age for file for maximum amount of benefits,” and while it’s true you can make a good case for filing later for social security benefits, for maximization of income in most cases, that doesn’t apply to every situation. In fact, there are five specific circumstances where I think filing early makes the most sense.