Ensure Your Retirement Plan Is Ready In Case The United States Raises Retirement Age

At the core of every retirement strategy lies a crucial factor that sets the trajectory for your golden years – the retirement age. This critical element serves as a milestone for your exit from the workforce and acts as a fundamental parameter to gauge the duration of your retirement and plan your financial future accordingly. In the United States, a nation with one of the world’s highest retirement ages, the financial landscape is undergoing shifts that necessitate careful consideration and proactive planning. Changing retirement account contributions, introducing new acts like the Inflation Reduction Act, Setting Every Community Up for Retirement Enhancement (SECURE) Act, etc., are some of the recent changes that can affect your retirement planning. While there has been no announcement on raising the official retirement age in the USA, it is still prudent to consider the odds of it happening. Presently, the full retirement age in the USA is 66 years for individuals born in 1959 or before, while those born in 1960 or later have a retirement age of 67 years. If the U.S. raises its retirement age, you may be faced with evolving dynamics that can significantly impact your retirement plans.

A financial advisor can help you with retirement planning if the United States raises the age of retirement. This article will discuss the steps you can take to ensure your retirement plan is ready if the retirement age is increased at any time in the future.

Below are 7 steps that can help ensure your retirement plan is ready for changes in the retirement age:

1. Assess your current retirement plan

It is imperative to carefully evaluate and adjust your current retirement plan in case of a potential increase in the retirement age. A comprehensive assessment of your current retirement plan is pivotal for making informed adjustments. You can begin the evaluation by revisiting your financial goals for retirement. Consider lifestyle expectations, travel plans, and specific financial milestones. Understanding your aspirations can help you lay the foundation for making informed adjustments to your retirement strategy that resonate with your long-term objectives. Next, you must project your anticipated expenses during retirement, factoring in an extended retirement age. Consider both essential and discretionary expenses, including housing, healthcare, travel, and leisure activities. Assess whether your current savings and investment strategy adequately cover these anticipated costs. This step is crucial for ensuring that your retirement lifestyle remains sustainable and enjoyable.

When assessing your retirement plan, you must also include any outstanding debts you may carry into retirement, such as mortgages, car loans, or credit card balances. It is essential to understand the pros and cons of raising the retirement age. While you may concentrate on the cons of having to work for a longer period, one significant benefit of late retirement age is that you also have a longer period to clear your debts. Evaluate how an extended working period may impact your ability to pay down your debts during your working years. Formulating a strategy for debt reduction during these years is essential. This allows you to retire debt-free and alleviate potential financial burdens during your extended retirement years.

2. Extend your savings period

The possibility to extend your working years carries significant implications for your overall financial plan. As the retirement age potentially moves further into the future, you will be confronted with the task of reassessing your retirement timelines. The first step in this process involves an evaluation of the impact that delaying retirement may have on your financial plan. This encompasses a thorough analysis of your existing retirement goals, anticipated expenses, and the overall structure of your financial strategy.

One of the primary adjustments that may be required is a conscious extension of your working years. This extension allows for an extended period of income generation and enables you to contribute substantially more to your retirement fund. As you continue working, you may need to make adjustments to your current spending habits and align your budget with the new timeline. This may involve scrutinizing discretionary expenses, identifying areas where cost-saving measures can be implemented, and ensuring that your financial resources are allocated judiciously to support both your immediate needs and long-term retirement goals. Prolonged work life often brings about an increase in expenses, as you tend to incur higher costs. Factors such as daily commuting, increased socializing, and the need for professional attire contribute to these additional financial burdens. Furthermore, as you age, your health-related expenses are likely to rise. This makes it essential to factor in these costs to manage and preserve your savings effectively. Despite the potential for a shorter retirement period due to a delayed retirement age, it remains crucial to continue prioritizing savings for retirement. Life is unpredictable, and you can never preempt how long your retirement turns out to be.

Exploring additional income streams is another avenue to bolster your retirement fund during the extended savings period. This could involve seeking part-time employment, taking on freelance opportunities, or venturing into alternative investments. The objective is to diversify your sources of income and create a more resilient financial foundation. Embracing a more flexible approach to your career may also be beneficial during this extended savings period. Since working for so many years can seem difficult, you can consider a phased retirement, where you gradually transition from full-time employment to part-time work. This not only allows for a smoother adjustment to retirement but also provides a continued income stream while affording you more time to pursue personal interests and hobbies.

3. Optimize your investment portfolio

Consider a reevaluation of your investment strategy and take into account factors such as risk tolerance, diversification, and alignment with different retirement horizons. The prospect of working longer introduces a dynamic shift in your financial planning. With an extended working period, you can accumulate more income. This, in turn, provides additional capital for investment. The surplus income can be strategically channeled into your investment portfolio and allow you to maintain a more robust and diversified approach.

As you extend your working years, it is essential to recognize that your risk appetite is likely to undergo a shift. Traditionally, as individuals approach retirement, there is a tendency to adopt a more conservative investment approach to protect their investment capital. However, when faced with an extended working horizon, your risk appetite remains elevated for a more prolonged period. This happens because you are able to generate income for a longer time, which affords you greater flexibility to endure short-term market fluctuations. Given these dynamics, reassessing your risk tolerance is a pivotal step in optimizing your investment portfolio. A higher risk appetite may prompt adjustments to your asset allocation, allowing for a more aggressive investment strategy that potentially yields higher returns. This does not imply reckless decision-making but rather a strategic alignment of your investment approach with your extended working timeline.

Diversification can be a crucial strategy in the context of increased official retirement age in the USA. A diversified portfolio of various asset classes spreads your risks and reduces vulnerability to the performance of any single investment. As you contribute more to your diversified investment portfolio during the extended working years, you not only mitigate risk but also enhance the potential for long-term growth. It is essential to explore investment options that align with your extended retirement horizon. Consider a mix of assets that provide both stability and growth potential. This may involve a combination of bonds, stocks, cash, real estate, and other investment vehicles that match your risk tolerance and financial goals.

You can also consider consulting with a financial advisor to optimize your investment portfolio. An experienced financial advisor can provide personalized guidance, taking into account your financial goals, risk tolerance, and the extended working period. They can help you make informed decisions about asset allocation, investment selection, and overall portfolio management, ensuring that your investments align with the goals of a prolonged career.

4. Diversify Your Retirement Strategy Beyond Social Security

Building up your savings outside of Social Security is fundamental to securing a robust and flexible retirement plan. While Social Security benefits are important, they are not the only retirement tool at your disposal. You can leverage opportunities like employer-sponsored 401(k) plans and Individual Retirement Accounts (IRAs). 401(k)s also offer matching contributions that incrementally increase your retirement nest egg. These accounts can help you build a robust financial foundation over time.

Moreover, contributing to 401(k)s and IRAs provides not only financial growth but also the unique advantage of lowering your taxable income. This dual benefit serves as an additional financial boost, making it an appealing choice for building retirement funds. Whether through a 401(k) or an IRA, these supplementary retirement funds outside of Social Security act as a financial safety net and buffer in unforeseen circumstances, such as changes in the retirement age. Building up savings outside of Social Security benefits also introduces flexibility in decision-making, particularly regarding the timing of Social Security benefits. Having alternative sources of savings enables you to delay claiming Social Security benefits, at least until the normal retirement age or even beyond. This strategic delay can result in greater total benefits from Social Security and help you in case of a longer retirement due to higher life expectancy.

5. Reevaluate Social Security strategies

Reevaluating Social Security strategies is a pivotal aspect of adapting to potential changes in the retirement age landscape. The first step in this reassessment is gaining a comprehensive understanding of how an increased retirement age may impact your Social Security benefits. According to the Social Security retirement age chart, the full retirement age varies based on the birth year. Therefore, it is essential to adjust your expectations and strategies to align with potential shifts in the official retirement age. This can help you lay the groundwork for informed decision-making regarding when to claim your Social Security benefits. For instance, delaying claiming Social Security benefits can be a strategic move in response to an increased retirement age. You can maximize your monthly payouts by waiting until you reach the new full retirement age. While the allure of accessing Social Security benefits earlier may be tempting, patience can significantly enhance the financial security of your retirement.

In addition to understanding the implications of an increased retirement age on your individual benefits, exploring spousal and survivor benefits also becomes crucial. For married individuals, the option to claim spousal Social Security benefits opens up new avenues for optimizing the overall household income during retirement. Understanding the nuances of spousal benefits, such as the eligibility criteria, timing considerations, and the potential impact on your own benefits, is essential for maximizing the total household income. For instance, applying for spousal benefits when reaching the full retirement age allows you to receive up to 50% of your spouse’s benefit. Make sure to carefully assess your options and determine whether claiming benefits based on your work record or your spouse’s yields a higher benefit. Also note that it is crucial to wait until full retirement age to claim spousal payments, as claiming them earlier may lead to reduced benefits. Divorced or widowed individuals also have the option to claim Social Security benefits based on their ex or deceased spouse’s record, provided the marriage lasted for at least ten years. The benefit amount will be influenced by when the ex or deceased spouse started earning toward Social Security.

Additionally, it is vital to note that while spousal benefits remain a percentage of the higher-earning spouse’s benefit at normal retirement age and do not change if the higher earner delays benefits (up to age 70 with delayed credits), survivor benefits will increase if the higher earner delays benefits.

6. Consider long-term care insurance

As retirement may stretch further into the future, the importance of safeguarding your financial well-being against potential health-related challenges cannot be overstated. Long-term care insurance emerges as a strategic tool to navigate the uncertainties associated with increased longevity and the likelihood of requiring extended healthcare assistance in retirement. A prolonged retirement journey brings with it the reality that, as you age, the probability of needing long-term care services will likely rise. Long-term care services can include assistance with daily activities such as bathing, dressing, and managing medications. These can become a necessity due to age-related health conditions or unexpected medical events. Long-term care insurance is designed to address the financial implications of such scenarios and offer you a layer of protection for both your assets and your overall financial security.

Long-term care costs can be significant and often go beyond what traditional health insurance covers. These may include expenses related to nursing homes, assisted living facilities, in-home care, and other forms of long-term care services. You risk depleting your retirement savings and assets to meet these expenses without adequate coverage. This can potentially jeopardize your financial stability in your old age.

Long-term care insurance provides you with the option to choose the type and location of care that best suits your needs. It allows you to maintain a level of autonomy and control over your healthcare decisions. Whether receiving care at home or in a specialized facility, the insurance coverage offers a degree of financial reassurance that reduces the burden on your finances during what can be a challenging and emotionally charged period.

7. Stay informed and updated

The evolving nature of retirement policies, legislative discussions, and economic indicators necessitates a proactive approach. To prepare for potential changes in retirement age, try and keep a vigilant eye on developments that might impact your retirement plans.

The most important thing is to stay informed about any proposed changes in retirement policies. Legislative adjustments regarding retirement age can have far-reaching consequences for your financial trajectory. To stay up to date on such changes, it is essential to actively monitor legislative discussions at both the federal and state levels. Government announcements, policy proposals, and debates surrounding retirement policies are critical pieces of information that can significantly influence your retirement planning decisions. You must regularly check official sources, such as the Social Security Administration (SSA) website or relevant government publications, for accurate and up-to-date information regarding potential changes in retirement age.

In addition, keep a close watch on financial news. Economic indicators and trends can provide insights into potential changes in the retirement age. Monitoring financial news channels, reputable websites, and publications dedicated to retirement planning allows you to access expert analyses and interpretations of economic developments. You can consider setting up alerts or subscriptions to receive timely updates on retirement-related news. News apps, email subscriptions, and notifications from reliable sources can offer pertinent information directly and allow you to stay ahead of the curve.

To conclude

The importance of staying up to date on potential alterations in retirement policies cannot be stressed enough. Even a small change can have a significant impact on an individual’s personal, professional, and financial landscape. Financial changes can materialize when you least expect them. These changes can potentially affect the timeline and benefits associated with your retirement. In this uncertain landscape, it becomes paramount to take a proactive approach to ensure that your retirement plan is adaptable and resilient in the face of potential changes. A thorough understanding of the existing retirement age policies, continuous monitoring of legislative developments, and the flexibility to adjust financial strategies accordingly can help you secure your future financially. It can also help you to hire a financial advisor to navigate the evolving landscape of retirement planning.

Use the free advisor match service to find experienced financial advisors who can help align your investment portfolio and retirement strategy to a higher official retirement age in the USA. All you have to do is answer a few simple questions based on your financial needs, and the match tool can help connect you with 2 to 3 advisors best suited to meet your financial requirements.

For more retirement tips and strategies for your specific financial situation, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. In addition, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.