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Retirement Plans & IRAs Are NOT For Retirement?

Find out why I call it 60+ money.

 

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by Rob Bertman, CFA, CFP® in Goals, Retirement, Wealth building
July 19, 2016

Summary

The word “retirement” in retirement plans is really the wrong word choice. It doesn’t really describe how we can use the money and when we can access it, so I’ve come up with a different term to call it.

Defining Retirement Accounts

When I mention retirement accounts or plans, I’m referring to accounts you’re probably familiar with like 401(k) and 403(b).  I’m also including IRAs in this discussion like a Roth IRA, Traditional IRA, Rollover IRA, SEP IRA, etc.

These accounts were established so that we could save money and get some tax benefits along the way (depending upon our income and eligibility). When we turn 59 ½ years old, we can take the money out without paying a penalty or fee.

Can We Only Use This Money If We Retire?

Do we really need to wait until we retire to take out this money, or do we need to turn 60?  It’s hard to tell since these are called “retirement” accounts.

Here’s an example: Think about someone decides to retire at 40.  Even though they’re retired, they can’t access that money until they turn 60 except under special circumstances.  Now think about someone who keeps working into their 80s or 90s. Well, they can still take money out at 60 just like the person who retired at 40.

Being retired has nothing to do with when you can access the money so why include the word “retirement” at all?

Antiquated Thinking

The term retirement plan also has an old-fashioned connotation just like social security. Maybe 50 years ago, people retired when they turned 60, but things are different today especially for our generation. Maybe we want to get there sooner. Maybe we don’t want to get there at all.  It shouldn’t matter when our retirement accounts or social security say we should.

A Better Name for “Retirement” Accounts

I call these accounts “60+ Money”, because that’s when I know I can take money out without fees or penalties.  Doesn’t that make more sense? Isn’t that much more descriptive of what we can use that money for? Retirement has nothing to do with it.

Another key point to consider is that I need to have money saved outside of my “60+ Money” for financial goals that I want to accomplish before turning 60. But, if I have financial goals that will take me into my 60s, 70s or 80s, I can save it in my “60+ Money” category, because that’s when I can access it.

“60+ Money”

Having the word “retirement” in the names of these funds and accounts is very misleading.  Calling these accounts “60+ Money” is a much more accurate description of when we can use the money.  It has nothing to do with retirement. It has everything to do with being 60 years old or older.

Start calling this your “60+ Money” instead of “retirement” accounts. The name gives us ultimate clarity of when and how we can actually use these savings.

 

Transcript

Hi there! I’m Rob Bertman, Founder of Money With Impact, and this is 5 Minute Financial Fitness.

We get your money in shape in 5 minutes by giving you a great tool, tactic, or strategy that can help improve your financial situation. We do it in a way you can actually understand, and we do it in 5 minutes.

The topic for today is why the terms “retirement plan” or “retirement account” are really the wrong word choice, because it doesn’t really describe how we can use the money within that account. I’ve come up with a different term to call it.

But first, let’s start with what I mean by “retirement accounts”:

You’re probably familiar with retirement plans like 401(k)s and 403(b)s.  I’m also including many types of IRAs like a Roth IRA, Traditional IRA, Rollover IRA,  SEP IRA, etc.

These accounts were established to save money in these accounts (depending upon our income and eligibility).  Over time they would grow, and when we reach 59.5 years old, we can take the money out without fees or penalties.

Depending on the type of retirement account, you may have to pay taxes, but at least there are no fees or penalties as long as you wait until 59.5 to access the money.

Because we have to wait until then, terms retirement plan or retirement account are really misleading.

Think about someone who retires at 40.  Even though they’re retired, they can’t access that money without fees or penalties until they turn 60.  Now think about someone who keeps working into their 80s or 90s. Well, they can still get the money at 60 just like the person who retired at 40.

So, these terms “retirement plan” or “retirement account” really don’t make sense of when we can access the money.  Plus, we don’t even have to be retired to access it.

Another other thing about a retirement plan or retirement account is that it has an old-fashioned connotation just like social security. It makes us thing we have to retire or be thinking about it when we’re 60 or 65, and it’s just not the case. Maybe 40 or 50 years ago, many would retire at that age, but things have changed.  Maybe we want to get there sooner. Maybe we don’t want to get there at all.

We should be able to set our own timeline of when we want to retire. It shouldn’t matter when our retirement accounts or social security say we should.

So, I decided to call these accounts “60+ Money”, because that’s when I know I can take money out without fees or penalties whether I’m retired or not.  Doesn’t that make more sense? Isn’t that much more descriptive of what we can use that money for?

When I review my financial goals or put together my latest balance sheet (I call it a Wealth Scorecard), I classify our IRAs and retirement plans in the “60+ Money” category, because I can use that money when I’m 60 years or older.

Another key point to consider is that I need to have money saved outside of my “60+ Money” for financial goals that I want to accomplish before turning 60. But, if I have financial goals that will take me into my 60s, 70s or 80s, well guess what? I can put it in this “60+ Money” category, because that’s when I can access it.

To summarize, having the word “retirement” in the names of these funds and accounts is very misleading.  Calling these accounts “60+ Money” is a much more accurate description of when we can use the money.  It has nothing to do with retirement. It has everything to do with being 60 years old or older.

Start calling this your “60+ Money” instead of “retirement” accounts. The name gives us ultimate clarity of when and how we can actually use these savings.

Next week, we’re going to be tackling another great subject on Tuesday, so I hope you join me for that.

If you prefer the podcast format on iTunes, Android, or Stitcher, go ahead and search for “5 Minute Financial Fitness”. You can subscribe to the podcast and leave a review on any of those platforms.  I also have a YouTube channel.

You can also go to www.moneywithimpactblog.com to sign up for priority access, so as soon as these come out, I’ll deliver them right to your inbox.

I greatly appreciate you joining me. I can’t wait to talk to you next week when we dive into another great subject.

Thanks for taking the time and we’ll see you next week!

All the best,

Rob Bertman, CFA, CFP®
Founder & CEO
Money With Impact
www.moneywithimpact.com

 

Cut your spending by $6,000 without giving up the fun and without a complicated budget.

Break the paycheck-to-paycheck cycle, find the money to pay back your loans and finally build your savings.