- If you are a retiree who turns age 70 ½ on or after 1 January 2020, you can now delay distributions until age 72
- This means you may have a wider window of opportunity to take advantage of lower tax rates during "gap years"
- Social Security's cost of living adjustment for 2020 is 1.6%, but that won't necessarily yield a 1.6% increase in net benefits due to increases in Medicare Part B premiums
- In the face of a changing retirement landscape and geopolitical uncertainty, a framework can help guide your short- and long-term spending goals
The SECURE Act sets out new rules to encourage more Americans to begin saving for retirement or bolster savings plans already in place. Key among these new rules is the age at which you must take required minimum distributions (RMDs): now age 72. Your retirement savings can continue to benefit from the power of tax-deferred growth a year or two longer–as long as you don't need the funds for near-term living expenses.
With the RMD age being pushed back to 72, you also have a wider window of opportunity to take advantage of lower-than-normal income tax rates during your "gap" years–the years between your retirement date and the point at which you begin receiving Social Security benefits and RMDs. Without working income and other sources of taxable income, these can be some of the lowest taxable income years of retirement–making it a prime time to take distributions.
You should review your distribution plans in light of this new rule to make sure you aren't missing out on potential tax savings.
Review spending needs
Social Security payments were never intended to be the sole source of income, but still represent an important source of retirement funds. While Social Security's cost of living adjustment is 1.6% for 2020, your Social Security payments may still fall short of maintaining your purchasing power year over year. It is important to review your current spending to help ensure you're still on track to meet your future spending needs.
Stay focused over the long term
With an election on the horizon and a variety of geopolitical concerns, it can be difficult to remain focused on long-term goals. We can help you organize your financial life into three key strategies: Liquidity—to help provide cash flow for short-term expenses; Longevity—for longer-term needs; and Legacy—for needs that go beyond your own.
Find out more about the changing retirement landscape and the importance of revisiting your retirement plan. Read the most recent issue of Modern Retirement Monthly: 2020 Retirement Guide.