The stock market is in a downward plunge, and there’s no sign that it will be heading in the opposite direction any time soon. As bad as it is for working people fortunate enough to have savings, it is jeopardizing the retirement security of millions of retirees. Martha C. White writes for the New York Times about the risk some retirees take when they must rely on their retirement savings in a bear market.
According to IRS rules, everyone must take money out of their retirement accounts beginning April 1 of the year after they turn 72. And, that’s not easy to do in a down market. Less money in retirement accounts means less income and a need to rethink spending.
Many retirees don’t have adequate income and savings to cover their costs in retirement, even in a bear market. Today, some experts believe people need $150,000 in savings just to pay healthcare costs in retirement. For many people, Social Security income alone does not even cover basic necessities. We need Congress to increase Social Security benefits.
The bear market, combined with inflation, is taking a toll on people’s retirement security. At the same time that the market has fallen, prices for consumer goods are climbing fast, which makes retirement living all the more difficult. It goes without saying that retirement insecurity is rising.
Today, people with investments fully in the stock market already could have seen losses as great as 40 percent, especially if they had invested heavily in tech stocks. But, they still must withdraw money from their retirement accounts if they’re over 72.
The value of investing retirement savings in bonds. Bonds are a much safer bet with retirement savings. But, the return on the investment is much smaller. Many retirees took a gamble on stocks with the hope of building a bigger nest egg. While the stock market was going up, it was a smart risk, now they have to deal with the consequences.
The value of holding cash in a retirement account. Some financial planners say it’s wise for people to hold some of their savings in cash, so that they are best able to make it through a plunge in the stock market. Of course, that option is easier said than done.
Unretirement and lines of credit. Some retirees are now forced to return to work to manage–what some are calling “unretirement.” Others were forced back to work before the bear market took hold because of high out-of-pocket health care costs. Some people are getting lines of credit and borrowing money based on the value of their homes, as a means of making it through this market downturn.
How much must you withdraw from your retirement account? How much you are required to withdraw depends on how much savings you have in your retirement account and your age. You must pay income tax on this money.
What if you don’t withdraw the money when required? You pay a steep penalty. The IRS imposes a 50 percent tax.
Congress is looking to delay the time that people are required to take money from their retirement accounts to 75. But, whether and when a law is passed to that effect is an open question.
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