Of course, not everyone who is still working in their early 70s has complete control over the decision of when to retire, Collinson says. Some find themselves essentially forced into retirement, either due to personal factors or to a layoff. Still, many people do enjoy the luxury of choice.
“If you are healthy and still working at 70, you now have a much longer window to allow your nest egg to recover before you have to start drawing down your tax-advantaged retirement assets,” Collinson says. “This is one of the benefits of the Secure 2.0 legislation that advisors should be emphasizing with their older clients.”
The extended RMD age is complemented by Sections 108 and 109 of Secure 2.0, which index the individual retirement account catch-up contribution limit to inflation and set a significantly higher 401(k) plan catch-up limit that applies between ages 60 and 63, respectively.
“Over the past few decades, retirement investors have seen some extreme bouts of market volatility, including the Great Recession, the COVID-19 crash and now the current bear market,” Collinson says. “These provisions in Secure 2.0, thankfully, offer a chance for people to respond to the serious challenge of sequence risk.”
Other Retirement Trends to Track
Taking a step back from the Secure 2.0 Act, Collinson says she is spending a lot of time these days thinking about the broader challenges that come with growing longevity. For example, she fears that too many people are either completely ignoring the planning implications of longer lifespans, or they are only focused on the positive aspects of living longer.
“It’s important to focus on the positive things and to have a positive vision of life in retirement, but one real fear I have is that people underestimate just how shockingly expensive late-in-life long-term care services can be,” Collinson warns. “I also am constantly coming across people who have misconceptions about what Medicare will cover and how much they may need to spend out of pocket on health care during retirement.”
As Collinson emphasizes, the caregiving challenge is something that affects entire families and can damage retirement security for people across generations. In other words, “it’s not just something that older people have to worry about.”
“It’s an intergenerational challenge, because so often this care is not given professionally, but rather by younger family and friends,” Collinson says. “In a recent survey, we asked workers about their caregiving experiences, and so many have been in this position of having to make financial sacrifices in order to provide care.”
Transamerica’s data suggests more than four in 10 workers are either currently caring for or have previously cared for an ailing older relative, and many say they have had to cut back on working hours or forgo a promotion in order to fulfill their caregiving obligations.
“This is something advisors should be paying attention to, because it is impacting the retirement readiness of workers of all ages,” Collinson warns. “It’s a big misconception that this is only harming older workers. Our research shows the highest rate of caregiving, and of negative financial consequences, is found among millennials.”