Question: T.H. in Warren County: I am 62, not married, and do not have any kids. Do I need to be doing anything special with my retirement planning?
A: You are part of a cohort that some have dubbed “Solo Agers.” And there are more of you than you may realize: According to AARP, about 12% of people age 50 and older fall into this category. From a retirement planning perspective, this means, yes, there are a few specific areas you should focus on to help make sure you age on your terms.
First, take a look at your support system. Do you have strong, healthy relationships outside of work? And while you might not have adult children who can provide you with care when the time comes, do you have any other family? Younger siblings? Nieces or nephews? If not, what about a younger, trusted friend?
This then dovetails into your finances and estate planning needs. Every adult should have what’s called a “power of attorney” document for both health care and finances. In these documents, you name a trusted person to make health care and financial decisions on your behalf, respectively, if you are no longer able. This doesn’t have to be the same person, but it can be. As a “solo ager,” it’s vital that you figure out what your legal guardianship looks like in the future.
You should also think about your home. While most people would like to age in place, is this going to be feasible, especially if you don’t have an adult child to provide care? You could consider hiring an in-home aide, assuming you can afford to do so. There are also several types of retirement communities from which to choose, including assisted living and independent living. There are even now some communities that promote “co-housing” – yes, just like the “Golden Girls.”
Here’s the Allworth Advice: As you approach retirement, it’s critical you start thinking about – and deciding – who to trust with your personal directives and assets. We highly recommend working with an estate planning attorney to arrange the proper legal documents.
Q: Clyde in Cincinnati: Is it better to contribute to an IRA or my 401(k)?
A: In most cases, we would recommend saving in a 401(k) over an IRA for two main reasons. First, you can save more in a 401(k) due to higher annual contribution limits. In 2024, the 401(k) limit will be $23,000 ($30,500 if you’re 50 or older), while just $7,000 for an IRA ($8,000 if you’re 50 or older). That’s obviously a pretty big discrepancy.
Second, many companies offer a 401(k) match. A common match is an employer contribution of 50 cents for every dollar you contribute (up to 6% of your salary). If your company offers a match, we recommend contributing at least enough to get the match, thereby taking advantage of this “free money.” Plus, keep in mind that if you make too much to save in a Roth IRA, a Roth 401(k) does not have income limitations.
When might an IRA take priority over a 401(k)? If you don’t get a company match, your 401(k) plan has limited investment options, and you’re under the income threshold for deductibility. In this case, you might want to consider maxing out an IRA first, then saving any additional money in your 401(k). But check with a tax professional before making this decision.
The Allworth Advice is that, ideally, we recommend saving in both a 401(k) and an IRA if possible. But if you’re picking between one or the other, a 401(k) usually comes out on top. A fiduciary financial advisor can help analyze your particular situation.
Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to email@example.com.
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Visit allworthfinancial.com or call 513-469-7500.