Best Income Ideas to Make Money When Retiring at 70 - Retirement Planning

There is no specific age at which people retire. Folks can choose to retire in their 40s, 50s, 60s, or even at the ripe old age of 70. That said, a large number of companies choose to retire their older employees who are in their 60s to make way for fresh blood in the organization. This plays an important role in rejuvenating the workforce and creating more vacancies in the company.

Also, a lot of people prefer to retire in their early 60s as they begin to feel the effects of aging. As you advance in age, you may find it challenging both physically and mentally to continue working with the same vigor as you did during your younger years. Moreover, by this time, children in most families have most likely become well-settled or studying in college. This is an ideal time for folks looking forward to a quiet life and hanging up their boots. That said, there may be some people who love their careers and may even entertain the idea of postponing their retirement to 70 or pursuing their passion to try something that they have always wanted to do. If you can monetize your passion, the better off you will be.

It is not unusual for people to retire at age 70, and happens far more frequently than commonly believed. There are several ways in which you can benefit from this decision especially when it comes to having a comfortable retirement. If you need help creating a customized retirement plan for retiring at age 70, do consult with a professional financial advisor who can guide you on the same.

Herein, we will discuss how much you need to retire at 70 and how you can achieve your goal of living comfortably during your retirement years:

1. Max out your contributions to retirement accounts:

If you choose to work throughout your 60s, you can tap quite a few opportunities, the foremost among them being, a tax-advantaged retirement plan. If you retire at 70, you can benefit from your retirement account in the following ways:

Your retirement savings will remain untouched as you can use your income to meet your living expenses.
You can continue making contributions to your retirement account for a further 8 to 10 years, thereby, maximizing the power of compounding.

You also have the option to boost your retirement savings by making catch-up contributions starting from the age of 50. As of 2022, you can contribute a further $6,500 and $1,000 per year to your 401(k) and IRA accounts on top of your base contributions. Suppose you max out your contributions, starting at the age of 50 to 70, you would have contributed an additional $20,000 to an IRA and $130000 to a 401(k). Do note that these figures are based on the 2022 contribution limits. These limits are changed periodically by the Internal Revenue Service (IRS). That said, you can considerably boost your retirement savings if you max out your contributions along with the catch-up contributions in just 20 years. You can further boost your retirement corpus if your employer matches your 401(k) contributions.

2. Max out your Social Security benefits:

As per the IRS rules, you can start making your Social Security withdrawals from the age of 62. But you only receive 75% of your monthly benefits if you start claiming your benefits at this age. You will receive your full monthly benefits only when you reach your full retirement age. The full retirement age varies for different people depending on their birth year. For instance, if you were born between the years 1943 and 1954, you will reach your full retirement age at 66. If you were born after 1954, the full retirement age increases in increments of two months. This is where things get interesting. If you refrain from claiming your Social Security benefits, for each year wherein you do not make a withdrawal, you get an extra 8%. If you wait till you reach 70 years of age, you can boost your monthly Social Security check by a massive 124% of the value that you would have received at the full retirement age. This is beneficial not just for you but also for your spouse. However, if you are banking on your Social Security benefits to meet your expenses in your 60s, you can plan to withdraw only one spouse’s benefits. Married couples can choose to claim the Social Security benefits of one spouse after reaching 62 years of age and let the other spouse’s benefits grow over time. Once the other spouse turns 70, you may withdraw the benefits at the time. Doing so would allow you to benefit from the increased paycheck and also meet your present financial needs.

3. Make a plan for taking out your Required Minimum Distributions (RMDs):

The IRS mandates that you must start taking out your RMDs from your 401(k), IRA, etc., once you turn 72. If you fail to withdraw the stipulated distribution, the IRS can tax the funds not taken out by you. Now you have to understand two things here. You can delay your withdrawals to the age of 72 to create a bigger retirement corpus but doing so would increase your tax liability. Hence, if you plan to retire at age 70, you need to first assess the amount of tax that you will owe the IRS to make an informed decision. For example, suppose you are working either part-time or earning money through a hobby of yours past the full retirement age, you can take out your RMDs before you reach 72 years of age. This will allow you to reduce your tax liability as well as help you meet your expenses in your 60s. On the other hand, if you choose to focus on your contributions and refrain from making any distributions, you may have to be prepared for a high tax rate post 72.

You should know that there is no right or wrong approach here as your unique financial situation would help determine the right course of action. Suppose you are investing in a Roth IRA account. You will be able to make tax-free withdrawals once you reach 59.5 years of age and have held the account for at least five years. But if you own a traditional IRA, then you may require a tax plan to manage your tax output during your retirement years.

4. Do not discontinue investing after 70 to negate the effect of inflation:

Once you retire, it doesn’t mean that you should put a stop to investing as well. In fact, with the loss of a steady income, you need to refocus your efforts to have an alternate stream of income to account for your expenses and offset the effect of inflation. With each passing year, the purchasing power of the dollar reduces which would require you to save more for retirement. You need to choose investments based on your risk tolerance. As you start nearing retirement, most financial advisors recommend starting shifting towards a strategy geared toward capital preservation rather than appreciation. At 70 or later, there is not much change in the strategy. Pick investments that offer low-risk returns such as bonds. Apart from being low-risk investments, bonds deliver consistent returns. They help strengthen your retirement fund without exposing you to too much risk. Simply put, bonds are fixed-income instruments that are loaned to other institutions on which you earn interest. There are primarily three kinds of bonds – government, municipal, and corporate with the government bonds being the safest and corporate bonds the riskiest investment among the three. That said, corporate bonds are still far less volatile compared to other investments such as stocks.

There is another good investment option that can be a part of the investment portfolio of a 70-year-old – annuity plan. An annuity plan is a financial product primarily used by retirees. Herein, they receive a guaranteed income in lieu of making an upfront payment to the insurance company. Under annuity plans, your money is invested in low-risk instruments. In addition to your regular payouts, you also receive returns on your investment. These plans are ideal for retirees as they are easy enough to monitor and help in simplifying your money management needs. Moreover, they help lower the possibility of running out of money due to poor financial planning. Further, you can benefit from the insurance part of the instrument. It can prove useful when you are undertaking estate planning since it offers financial security to your nominee or next of kin in case you die prematurely.

5. Do not forget to sign up for Medicare when you turn 65:

Medicare refers to a healthcare program that requires every individual who wishes to continue working after reaching 65 years of age to enroll compulsorily. There are four different categories of Medicare namely, Medicare Part A, Part B, Part C, and Part D. You may be penalized if you fail to enroll in Medicare. If you start withdrawing your Social Security benefits at or before reaching 65 years of age, you will be automatically enrolled for Medicare Part A and B. Herein, you will not receive a penalty. That said, if you choose to wait until your 70s to withdraw your benefits, you will have to enroll in Medicare yourself to avoid being penalized. Generally, you may not have to pay a penalty on Part A as it is usually free but you may have to shell out a 10% penalty on your monthly premium in some cases. Additionally, the IRS can levy a 10% surcharge on Part B premium payments for each year after you turn 65 and do not enroll yourself in Medicare.

Ensure that you enroll yourself for Medicare during the Initial Enrollment Period (IEP) if you are planning to retire at age 70. There is a seven-month window for enrolling during IEP which starts three months before the month you turn 65 and continues for three months after your birthday month. For example, if your birthday falls in the month of July, your IEP will start in April and end in October.

6. Eliminate debt and avoid adding more during the latter years of your life:

If you choose to delay your retirement to your 70s, you cannot extend your loans in a similar way. It is advised that no matter at what age you retire, you should look to settle your loans before you enter your 60s. Doing so can be beneficial to you in several ways such as:

Being debt-free is an advantage as it reduces your financial stress and allows you to focus on building wealth rather than clearing your dues.
If you clear your debt before you enter your 60s, it helps secure your retirement corpus.

As you advance in age, you may develop health concerns that may render you unable to work and earn before you hit 70. This would result in you having to take an unplanned retirement and you may find it difficult to get rid of your debt on your retirement savings. More so, it may become a cause of stress for your loved ones. In the event of an untimely demise, your spouse or your children may have to bear the responsibility of paying off your loan which may become a cause of financial stress for them. Hence, it is recommended that you prioritize repaying your debt early in life and avoid taking on additional debt during the later stages of your life including any debt related to credit cards, loans, or mortgages.

To summarize

There is no direct answer to how much money is sufficient to retire at age 70. Each individual has a unique lifestyle along with financial needs and goals. The objective here is to save enough money to last you a lifetime. You can assess your expenses, lifestyle habits, goals, and more to find out a sum that you think would be ideal for you. If you wish to retire at age 70, you can implement the suggestions discussed in this article to help boost your retirement savings and maximize your benefits.

Reach out to a professional who can help design a customized retirement investment strategy that specifically caters to 70-year-old retirees. Use the free advisor match service and get matched with 1-3 vetted financial advisors that can help you with your unique financial needs and goals.