Don’t let lifetime, financial milestones sneak up on you

For the first time since I was a little kid, “the half’ is about to be important again.

“The half” is something children care about that adults typically ignore. It’s the six months of age that kids include when telling you they are, say, “six-and-a-half years old,” that grown-ups effectively discard the moment they reach adulthood.

This weekend, however, I turn 59, and spending decades as a personal finance journalist has etched certain numbers into my brain. In the sequence of important ages around retirement, 50 is the first key number, because it’s the age when savers are allowed to make “catch-up contributions” to individual retirement accounts and retirement plans.

The next number in the sequence is 59½, the age when withdrawals from a 401(k) or an IRA are no longer subject to a 10% early withdrawal tax.

While I’m expecting it to be years before I even consider accessing my retirement moneys, it’s a bit shocking to have spent my career saying “There are penalties for early withdrawal until you near your 60s” and to now be reaching that age myself.

Time catches up to us all, but what we must do as retirement savers is make sure that it doesn’t surprise us.

Too many people wind up making default choices or less-than-ideal elections when it comes to those key retirement numbers. They hit age 62 and start taking Social Security — even though they statistically might be better off waiting to collect benefits — because they weren’t prepared to wait. Or they push toward “full retirement age” — which can be 66 or 67, depending on when you were born — and let that age number rather than portfolio totals determine if deferring Social Security to age 70 is possible.

People who “can’t wait” to collect Social Security are likely to collect less over their lifetimes than those who can put it off for a while; people who must crack into their retirement savings before required minimum distributions take effect (at age 72 ) are in more danger of outliving their money.

While I don’t feel my age (or typically act it, for that matter), I have always been aware that the passage of time would create financial decisions, and potential anxieties.

I’ve spent my entire adult life worrying about the arrival of a guy I call ‘65-year-old Chuck,’ and now that I can hear him humming in the distance, I’m fortunate not to be sweating his arrival.

In my 20s, when I could barely afford to save anything for retirement, I contributed anyway because someday I would come face to face with my 65-year-old self, and the first thing he would ask me is what I had done with his money.

Whenever I was tempted to save less or spend more, the eventual arrival of 65-year-old Chuck was motivation to keep finding ways to save.

Hitting a big number in the retirement sequence makes his arrival more real, and means that it’s crunch time.

The problem for retirement savers is that once you get to crunch time, there’s not a lot you can do if you haven’t spent decades saving and preparing.

Catch-up provisions only let you save a little bit more, and for a small number of years. They help, but not enough to truly “catch up” if you haven’t been doing things right all along.

 Most people only have loose benchmarks for how they are doing in their retirement planning.

Collectively, however, it’s clear that people aren’t saving enough to reach appropriate savings goals.

A survey by the Transamerica Center for Retirement Studies showed the median retirement savings for Americans in their 50s stands at $117,000, with the median for people in their 60s pegged at $172,000.

Consider that experts want savers in their 60s to have a nest egg equal to eight to 10 times their salary; based on the median savings and backing out the math from it, that nest egg is appropriate for a 60-year-old saver earning somewhere between $17,000 and $21,500 annually.

The problem is that the actual median income for people nearing retirement age is more like $55,000, meaning Americans are woefully under-saved — like two thirds below recommended levels — and will have trouble creating financial peace in retirement.

Fidelity Investments has done extensive “savings factor” research to show the multiple of salary that investors should amass by a certain age.

For example, at age 45, an investor is considered on pace for appropriate retirement savings if they have four times their salary. At age 60 it’s 6 times the salary, rising to 10 times salary set aside for retirement come age 67.

Speaking personally, I was ahead of that pace at 45, but suffered a setback with a surprise divorce a few years later. Now, with a year to go before 60, I’m back to being ahead of schedule (thank you, stock market).

Of course, your age is only a number, unless it highlights how badly you squandered the financial savings opportunities of your youth.

As you near retirement, every “half” counts. Check your progress while you can still do something to improve your standing, if necessary.

Knowing where you stand is crucial; it allows for planning, creating an asset allocation and sets a savings/spending path that will make the most of savings while allowing appropriate — and, if you’re fortunate, generous — spending at every age for the rest of your life.

You don’t need to watch your savings build every day — an obsessive focus tends to make people do dumb things that short-circuit their planning — but you must check in and come up with an action plan.

The closer you get to retirement age, the more detailed the plan should be, and the more imperative it is that you actually put it into action.

The more you put off doing a financial checkup, the more age creeps up on you and you hit those milestone ages and lifetime benchmarks unaware, unprepared and acting impulsively.