Retirement Zing

How to Choose a Rollover 401k IRA Account Provider

2010-10-27T04:44:00.000-07:00

Investing for retirement is a serious topic – and it’s no surprise that it’s one many people are uncomfortable with in light of the recent turbulence in the financial industry. If you’re thinking about performing a 401k plan rollover, you’ll want to be sure that the account provider you choose meets a number of different criteria. Let’s look at how to choose this company in more detail.

Why Should I Rollover My 401k?

For starters, performing a 401k direct rollover offers a number of different benefits, including a larger range of investment options and a more streamlined retirement investing process. Many corporate 401k plans restrict the number of investment options available to you, making it difficult to match the returns you can earn with an IRA account. Plus, if you perform a direct 401k rollover to IRA, you won’t owe any taxes or penalties on the transfer.

What is the Best 401k Rollover Account Provider?

Well, that’s a tough question to answer – especially since the right IRA custodian for one customer could be the wrong provider for another. Instead, let’s look at a few key features of good 401k rollover account providers:

Range of Investment Opportunities

Remember that one of the major reasons you’re thinking about doing a 401k rollover is to gain access to a wider range of investment opportunities than your company’s 401k plan, so make sure your IRA provider actually offers these additional options. Ideally, your provider should offer a wide range of stocks, mutual funds, exchange traded funds, bonds and bond funds for you to choose from.

Company Reputation

A 401k rollover account provider’s reputation can be difficult to ascertain – just look at how many supposedly reputable banks have gone out of business in the last few years! In general, though, your money will be safer at a larger institution than a smaller bank. Ask around for recommendations or contact the Better Business Bureau or other consumer protection agencies to dig up any dirt on the account providers you’re considering. Remember that if something doesn’t feel right, it probably isn’t!

Look at Your Investment Fees

While you shouldn’t have to pay a fee to rollover your 401k to an IRA, you may encounter additional fees throughout the life of your account. Look for things like account maintenance fees, annual subscription fees or any charges to perform trades within your portfolio. Although you’ll likely have to pay some fees, your total costs will vary greatly from one provider to another.

Customer Service is Key

If you’re having trouble with your 401k rollover form or any other aspect of your account, you’ll want to be able to talk to a real person, instead of being forced to navigate through a complicated website or automated phone system. Performing a 401k rollover to IRA isn’t complicated, but you may need some assistance throughout the transfer, so call the providers you’re considering ahead of time to get a feel for their customer service processes.

When Should You Perform an Annuity IRA Rollover?

2010-04-22T03:33:00.000-07:00

If are looking for retirement investment options tax-deferred growth and a guaranteed income, guaranteed, you will find that there are many advantages to running a pension rollover of the IRA. Make this important decision, the financial capacity to your retirement savings intact growth over time and to ensure an income when you need it most in life lately. Leave some of your IRA annuity option to see what might be the best.

Why choose an IRA distribution?

To begin, note that if you have money or change jobs, you can roll your retirement with a 401K or 403b annuity IRA to your investment options and plans for future increases.
Annuities that received money from a 401k (or IRA approved) insurance companies to make a retirement IRA. This means you can start your retirement funds to pay the insurance as a retirement IRA. If you retire in the near future, you can roll into an immediate benefit that allows direct payments. On the other hand, if you simply change employers and have a time until you plan to retire, you roll to a deferred pension.

Annuities typically provide higher interest rates that many banks and savings and may have significant protection for your capital to. They also offer significant tax deferral benefits, especially when it is incorporated in tax-deferred IRA accounts. If you are concerned about the current state of the economy, you can be more focused on preserving your fund their growth. The IRA is an optional annuity safe and to ensure that you have enough money for your retirement.

Another reason that many people choose a retirement IRA is to protect the principal investment amount. While all investment opportunities lead to a certain degree of risk for the money, annuity IRAS provide a degree of protection against total loss.

Creation of an annuity with IRA

An IRA annuity issued by insurance companies and provides essential that you have a regular pension benefits during your retirement. You can start receiving your pension when appropriate retirement age, which is currently set at 59 ½ to reach. There may be costs associated with setting up an IRA benefit initially, but there is also a high degree of security of such investments.

If you want to retire before age 59 ½, but does not want to pay 10% tax on the distribution by the IRS, you should consider an IRA annuity as a way to immediately earn an income. An insurance company sells your benefit and if you like a regular pension payment, you can avoid the tax. For people who like early retirement, the extension of the retirement IRA offer significant advantages over other forms of investments.

Insurance costs a premium, but it also provides protection and peace of mind. An IRA annuity offering a guaranteed death benefit, guaranteed minimum withdrawal benefit pensions and minimum income guarantee schemes - very strong incentives to an annuity IRA rollover to annuity as part of your retirement savings plan.

Long term care insurance

2010-01-12T04:47:00.000-08:00

Although buying insurance is never fun, given the alternatives of transferring assets or getting a divorce, it is the least evil choice. For that reason, clients who are not independently wealthy should consider buying a policy - even as early as age 40 or 50.

Here's why: The cost of coverage is related directly to your age at the time you buy the policy (rates are unisex; there is no cost difference betwen men & women - not yet, anyway). Since a person age 50 is not likely to file a claim for 20 years or more, the carrier has many years to collect premiums. Thus the cost for that 50-year old is quite low - about $150 per month in many cases. That's extremely affordable, especially considering that the cost of policies skyrockets with age. If you don't buy a policy until 65, the cost could exceed $3,500 per year, or $7,500 by age 75.

Many feel that buying a policy in their fifties is unnecessary, since it is likely to be years - even decades - before they'll need the coverage. (But it's more likely than you might think: 11% of nursing home residents are under age 60. Most of them are accident victims, which can occur at any age.)

Many wealthy Americans buy long-term care insurance even though they don't need to. Why? Because they'd rather spend several hundred dollars on a policy instead of many thousands on the care itself, preserving their assets for their children. Indeed, for many people, long-term care insurance is not just a smart way to protect you, it's a smart way to protect your assets, too.

Divorce yourself from Medicaid

2010-01-10T04:39:00.000-08:00

The institutional spouse leaves all assets under a divorce decree to the community spouse; Medicaid cannot claim assets transferred in such a manner. This isn't necessarily a great idea, either, because:

The same ethical problem exists;
If you thought it was tough for Mom and Dad to handle the thought of giving everything to their kids, just try to get them to file for divorce after 45 years of marriage simply because one of them is declining in health. Not only is it unlikely they'll do it - it's one heck of a commentary tha our laws even encourage such an action; and
Medicaid is aware that many couples are divorcing for economic rather than marital reasons, and the agency is starting to challenge this strategy. Where claimants have recently divorced and decreed all their assets to their ex-spouses, Medicaid has gone to court, aruguing that under the divorce decree, the institutionalized spouse did not get his or her fair share of the marital assets. Why argue that position? Because if Medicaid wins, as much as half the marital assets return to the institutional spouse, which Medicaid then can seize.

The three levels of long-term care

2010-01-09T03:23:00.000-08:00

We'll talk more about the cost of care and how to pay for it. But first, it is important that you become familiar with the three types of care.

Level #1: Skilled care
Defined as continuously medically necessary, these cased represent the horror stories about growing old: of people tied to their beds, connected to tubes, suffering from some chronic ailment. But in reality, only one-half of one percent of Americans require this level of care, so unless you have a medical or family history that predisposes you to it, it's statistically unlikely that this will happen to you.

Level #2: Intermediate care
This is care provided under a doctor's supervision. Only 4.5% of the nursing home population falls in this category.

Level #3: Custodial care
All other long-term care patients - 95% - receive custodial care, which is little more than room and board. It is based on the mere premise that you're finding it difficult to maintain one or more of the Activities of Daily Living. Often, Mom is in a retirement facility because she cannot live alone at home anymore, and the kids are unable to care for her.

The result: Mom enters a retirement home. She will find her meals prepared, her room cleaned, and someone to remind her to take her medication.

Activities of daily living

2010-01-07T03:12:00.000-08:00

Old cars break down more often than new ones, and the same is true for people. As our bodies wear out, we find ourselves requiring assistance with daily life. Called the Activities of Daily Living, insurance companies typically define these as eating, dressing, bathing, toileting, transferring (getting from bed to chair), and maintaining continence. The need for assistance with ADLs is so common, and the cost so large, that:

more than half the women and about one-third of the men who reach age 65 will spend some time in a nursing home;
seven out of 10 couples can expect at least one partner to use a nursing home after age 65;
the average cost of a nursing home is about $66,000 per year;
half of all older Americans who live alone will spend themselves into poverty after only 13 weeks in a nursing home;
56% of couples spend their income down to the poverty level after one spouse has spent 6 months in a nursing home; and
2 out of 5 people, 65 and over will need long-term care. Half will stay in a facility six months or less, while the other half will stay an average of two and a half years.

Just how long are people living today? Consider:

Life expectancy at birth is now age 77;
people in the fastest growing age group in this country are those over 85;
if you and your spouse both reach age 65, one of you can be expected to live to age 90;
90% of all the people in the world history who ever reached age 90 are alive today; and
Willard Scott won't with you a happy birthday unless you are least 100.

Long term care

2010-01-06T02:14:00.000-08:00

If you're under the age of 40, you probably think the subject of long-term care doesn't apply to you. But it does - not only because you will one day be old enough to worry about it - but because you will be faced with the problem as your parents get older.

Indeed, the Marriott Corporation found that although the median age of its employees is 35, some 15% say they have elder-care responsibilities. And in a study of workers at several major corporations, the consulting firm Cobley & Hunt found that, of caregiving employees:

1% were forced to quit their jobs in order to provide care for an elder;
11% take off an average of 6 days per year to provide routine elder-care;
100% incur workday interruptions to provide routine elder support; and
20% incur excessive use of physical, mental health, and Employee Assistance Plan Services.

Face It: Long-term care is an issue you will face at some point in your life - and probably much sooner than you think.

Leading causes of death in 1900: Pneumonia, Tuberculosis, Diarrhea, Hephritis & Diptheria
Leading causes of death in 2003: Accidents, Cancer, Heart Disease, Suicide/Homicide & HIV

One dumb feature you need to avoid

2010-01-04T02:07:00.000-08:00

To overcome the objection that DI coverage costs too much - and to help agents make the sale - many insurers offer an option called the Return of Premium Rider. This rider (so-called because it's an addendum to the insurance contract) says if you do not suffer a disability, you are entitled to a partial refund (usually 50%) of the premiums you paid.

This is a popular option, but it's really quite dumb. After all, buying the policy is in direct conflict with the rider. You buy the policy in case you become disabled, but you buy the rider in case you don't. It doesn't make sense!

It makes even less sense when you realize the cost. Buying the rider increases the cost of the policy by 20% to 40% for the privilege of getting half your money back. It's a wonderful example of the smoke and mirrors that are so pervasive in the insurance industry. Avoid this trap.

Why you should not deduct premiums as a business expense

If you own a business, you can deduct the cost of your DI policy as a normal business expense. If you do, you'll give yourself a tax deduction, which in turn lowers your cost of buying the policy.

Don't do it.

If you do, the disability insurance, should you ever receive it, would become taxable. Therefore, you should pay your premiums personally, with no tax write-off, so that any disability income payments you receive will be tax-free.

Reasons not to buy DI policy based on price

2010-01-03T01:53:00.000-08:00

When shopping for a disability policy, don't buy based on cost, for the cheaper the policy, the less likely your claim will be covered - or if it is, the less money you will receive. Disability insurance is not as simple as life insurance. With life insurance, there is no debate regarding the legitimacy of the claim: If you die, they pay. But what about a disability? What exactly does disabled means? And who decides you've met the definition - your doctor or the insurance company's doctor?

This is perhaps the most important factor affecting the value - and cost - of a disability contract, and why you cannot buy a policy merely based on price. Cheap policies have a definitions so strict that it is unlikely you will ever qualify to receive payments, while more expensive policies have more favorable definitions.

For example, is a surgeon who loses a finger disabled? Don't be too quick to say yes. After all, a surgeon certainly can teach or consult, and her income might not suffer in the least - despite the fact that she no longer can perform surgery.

Thus, standard disability policies would not consider her to be disabled. Standard contracts say you must be unable to perform the duties of any occupation for which you are prepared by training or experience. In other words, if you can sell magazine subscriptions over the phone, you might not be considered disabled. This is why the Social Security Administration, which uses a "totally disabled" definition, denies more than 90% of the claims field.

If you are a white-collar worker, therefore, or one who works in a specialized field, you need a policy that will pay benefits if you are unable to perform the duties of your own occupation. With an "own-occ" policy, our surgeon would be considered disabled and entitled to benefits even if she continued to earn a living as a professor or medicine.

Women and retirement

2010-01-01T01:19:00.000-08:00

Retirement planning is a critical issue for many women. Although the majority of adult women are married, 85% die alone - unmarried, widowed, or divorced. Also, older women generally have worked fewer years and earned less money than men.

The result, according to the Social Security Administration, is that only 37% of women over 62 receive Social Security benefits based solely on their own work records, and these women receive on average only 76% as much as men. In fact, 63% of all women over 62 qualify for higher Social Security benefits as the wife of a worker rather than as a worker themselves. Indeed, the Older Women's League reports than the total median annual income for women 65 and older is 43% less than the median income for men of similar ages.

While this trend may change over the next 40 years as women in today's younger generation achieve more economic parity with men, it is undeniable that many older female Americans face a difficult situation. In fact, in 1988, Social Security accounted for more than 90% of the total income for one third of older unmarried women.

The problem extends beyond Social Security, too: Since women tend to spend more years outside the workforce (raising families and maintaining the household), and since they tend to earn less when they do work, according to the US Census Bureau, they qualify for pensions only half as often as men do.

Similar statistics are found in their rates of personal savings: Retirement-age women have half the amount of personal savings as men their age.

Perhaps the most telling statistics is cited by the American Association for Retired Persons: Although only 12% of all elderly people live in poverty, 74% of them are women.

Clearly, women who ignore retirement planning do so at their own peril, so if you're a woman and you didn't pay much attention here, read the post again. And if you're a man, you need to share this post with your mother, your sister, your wife, and you daughters.

Why retirement plans are not enough

2009-12-31T01:18:00.000-08:00

As outstanding as pensions and retirement plans are, they are not enough to satisfy your retirement income needs. Yet many workers who are covered by these programs often have terrible personal savings records. Many are in for a shock when they discover at retirement that their retirement income is a fraction of their pre-retirement pay.

For example, workers earning $50,000 a year, who plan to retire with nothing but a pension and Social Security, can expect their income to drop 36% the day they retire. That's right: They'll get pensions worth only 44% of pre-retirement pay and Social Security will provide only aonther 20%.

Could you afford a 36% pay cut right now? If you can't, what makes you think you'll be able to afford such a large cut at retirement?

It's even worse for higher paid workers. If your final pay is $150,000, pensions and Social Security together will replace only 36% of your income. You'll lose a whopping 61% of your income when you retire!

401(k) Plans - The grandest of all retirement plans

2009-12-29T00:15:00.001-08:00

The 401(k) plan - so named by the tax code section that created it - is offered by more companies than any other type of retirement plan, so if your company offers plan, it's likely to be this one. If so, you need to understand how it works.

The four contribution methods of 401(k) plans

Method #1: The employer's basic contribution
This contribution usually is a percentage of payroll.

Ken, 45, makes $40,000 a year and his company contributes 1% of his pay to the 401(k) plan every year. Although the money is Ken's, he is not taxed on it, and the money grows tax-deferred inside the plan.

Method #2: The employee's voluntary contribution
Depending on where you work, you may be permitted to contribute up to $13,000 in 2004 ($16,000 if you are 50 or older).

Ken is allowed to invest up to 5% of his paycheck into the 401(k) plan. He gets a tax deduction for the amount he contributes, and like the employer's contribution above, this money grows tax-deferred.

Mehtod #3: The employer's matching contributions
Through this method, the company contributes a percentage of what the employee contributes.

Ken's company adds 25 cents to the plan for every dollar that Ken puts in himself. This increases Ken's stake by 25%, yet he is not taxed on this money, and it too grows tax-deferred until he retires.

Method #4: The employer's profit-sharing contribution
This is an additional contribution that the company voluntarily makes each year based on the firm's profits.

Ken's company typically gives Ken a bonus equal to 3% of his pay, which is deposited into the plan on Ken's behalf. Like the other contributions, this one too is not taxed and it grows tax-deferred.

Thus, of the four ways money goes into a 401(k), only one comes from the employee - making these plans a great deal for workers!

All told, Ken contributes $2,000 of his own pay to the 401(k), a contribution that costs him only $1,340 because the contribution entitles Ken to a tax deduction that saves him $660 in taxes. On top of that, Ken's employer adds another $2,100 - $400 in basic, $500 in matching, & $1,200 in profit sharing contributions - and all of it in pre-tax dollars, which grow tax-deferred. Thus, for every dollar Ken contributes to his 401(k), his employer contributes $1.05. Put another way, for a $1,340 investment, Ken's account is worth $4,100 - and that's before his account earns a penny from interest, dividends, or capital gains!

Without question, the 401(k) plan is indeed the grandest of all retirement plans!

Company retirement plans

2009-12-28T00:02:00.000-08:00

All retirement plans - whether individual or company sponsored - offer two major benefits:

You do not pay taxes on any of the money that is contributed to the plan until you begin withdrawals, and
Any interest, dividends, or capital gains that accumulate in the plan are tax-deferred until withdrawal.

Let's take a look at the different kinds of plans offered by companies for their employees.

Retirement plans for the self-employed

If you have any self-employemnt income, from baby-sitting to shooting wedding videos, you may be able to set aside some of your income into a tax-deductible retirement plan.

The Simplified Employee Pension Plan
Known as SEP-IRA, this is as easy to use as IRAs (and almost identical as well). But SEPs offer one major advantage over IRAs: Instead of being limited to a $3,000 annual deductible contribution, you can put away 25% of your self-employment income, up to $40,000. You are permitted to do this even if you or your spouse participates in another pension or retirement plan.

SEPs involve minimal disclosure and reporting requirements. You can contribute different amounts from year to year, and you can await until April 15 to contribute for the previous year (or later if you file an extension). Other plans must be established by December 31.

The Sole-Owner 401(k) plan
This is the newest retirement planning idea to come from Congress, and it's designed for you and your spouse, whether your business is a sole proprietorship or a corporation. As an employee of your business, you can contribute up to $13,000 in 2004 ($16,000 if you are 50 or over). And as the employer, you can boost that figure to 25% of compensation, not to exceed $40,000.

Sicne you are both employee and employer, and since these contribution limits change yearly, you should seek the help of a tax advisor to help you determine the maximum contribution you can make to a solo 401(k) plan.

Withdrawing money form your IRA #3

2009-12-26T04:39:00.000-08:00

Goldilocks Penalty #3: Too Little

This is directly related to Goldilocks Penalty #2. Whereas #2 forces you to begin making withdrawals by age 70.5, #3 applies if you fail to withdraw enough.

I'm talking about something called required minimum distribution. To determine this figure, the IRS offers a formula.

The distributions are intended to last your entire lifetime. However, you can base them on you life expectancy, or the combined life expectancies of you and your beneficiary (typically your spouse).

To help you determine how long you and your beneficiary are supposed to live, use the IRS' Uniform Distribution Table (or the Joint and Last Survivor Table when your spouse is your sole beneficiary and is more than 10 years younger than you).

Once you know your life expectancy, figuring out how much money to take from your bucket seems simple enough. For example, if you have $198,000 in your IRA and your life expectancy is 22 years, simply divide the $198,000 by 22, and withdraw $9,000 the first year. But this ignores the fact that your IRA is continuing to grow in value, and if you don't take this into consideration, you might find that you have failed to withdraw enough money.

One year from now, your life expectancy ill be less than it is right now. Therefore, you must recalculate the amount that you withdraw each year, based on each year's current life expectancy plus the value of your account as of December 31st. Assume that is is one year later and on the previous December 31st, your account is worth $212,000. Your new life expectancy is 21.2, so you must withdraw $10,000 next year.

Withdrawing money form your IRA #2

2009-12-25T04:38:00.000-08:00

Goldilocks Penalty #2: Too late

For all IRAs except the Roth, you must begin to withdraw money by April 1 of the year following the year in which you turn 70.5.

For example, say you reach age 70 on 10-July-2004. That means you are 70.5 on 10-January-2005, so you must make a withdrawal from your IRA by 1-April-2006, and by each 31-December thereafter.

If you fail to make the withdrawal, you will pay a 50% penalty (yes, 50%!) on the amount you were supposed to withdraw but didn't. And that's in addition to the regular tax.

One Hapless Family

If you're trying to imagine what might happen if you fall victim to these rules, consider the plight of Dr Gabler's family.

Dr Gabler practiced medicine for 47 years, and like many physicians he was able to accumulate substantial amounts of money in his retirement accounts. At his death early in 2003 at age 82, his IRAs and other retirement accounts were worth $3 million. He also owned two homes and other assets of sizable wealth, which he left to his children, but he chose to name as beneficiary his 12 grandchildren for their future college educations.

It was a few months after Dr Gabler died that one of his daughters, Judith, came to see me. She had just seen the accountant handing the estate tax return, and she wasn't happy.

You see, Dr Gabler's IRA is considered part of his estate, making it subject to a 48% federal estate tax. Cost $810,000.

Dr Gabler also made the unfortunate decision of leaving his IRA directly to his grandchildren. Therefore, his estate must pay a 48% Generation Skipping Tax. There is, however, a deduction for the estate taxes already paid. Cost $331,200.

And, of course, money distributed from an IRa is taxable at both the federal and state levels as ordinary income. Although there are some adjustments for the above deductions, the tax nonetheless is at the 43% combined marginal federal/state bracket. Cost $741,234.

The result is:

Gross value of IRA: $3,000,000
Less Estate Tax: $810,000
Less Generation Skipping Tax: $331,200
Less Income Taxes: $741,234
Net After-Tax Value to Heirs: $1,117,556
Split Among 12 Grandchildren: $93,130

I think you see why Judith was so unhappy.

The Perils of bad tax advice

And I didn't improve her mood. Because her father had already died, virtually nothing could be done to avoid the huge taxes his estate was incurring. Proper estate planning could have avoided almost all of this cost, but planning must be done before death occurs. Once a person dies, it's almost always too late, as it was in this case.

The irony is that Dr Gabler's tax preparer probably made the situation worse. People who hire accountants tend to give them one mission - lower my taxes! - and Dr Gabler was probably no different. So, when he turned 71 and his accountant said he needed to start making withdrawals from his IRA, Dr Gabler withdrew only the minimum. After all, he had plenty of money from other sources, and he didn't need income from the money in his IRA. And since any money he withdrew from it would be taxed, it made sense to him to keep those withdrawals to a minimum.

And since the accountant knew he needed to keep Dr Gabler's taxes low or face his client's wrath - and maybe even lose the client's business - he didn't make a fuss when Dr Gabler insisted on withdrawing only the minimum.

Unfortunately, by withdrawing only the minimum each year, the IRA continued to grow in value - so much so, that by the time Dr Gabler died, the account was worth $2 million, resulting in the problem you just saw.

Thus, because he wanted to keep his income taxes low each year, Dr Gabler's estate eventually had to pay a federal estate tax and a generation skipping tax - on top of the income taxes he so desperately wanted to avoid. Remember. When it comes to taxes, you can defer and delay, rarely avoid.

Indeed, Dr Gabler was penny-wise and pound-foolish. By keeping his current taxes low, he allowed his future taxes to soar. And because many tax preparers have tunnel vision - seeing only this year's tax return instead of their client's complete, long-term tax picture - they often fail to provide the guidance and counsel their clients need. Avoid this trap. Be careful when making financial decisions, for good short-term moves often can be very bad in the long-term.

Withdrawing money form your IRA #1

2009-12-23T04:37:00.000-08:00

A few years ago, my wife Jean excitedly ran into the house and shouted, "There's a mouse in my car!"

That's ridiculous, I thought. After all, she never actually saw the mouse. But she had hard evidence (if you know what I mean) hat it was there. My first question, to no one in particular: How on earth does a mouse get into your car?

As I soon discovered, that was the wrong question. What I should have asked was: How on earth do you get a mouse of your car?

This concept also applies to IRAs. Everyone in my industry focuses on getting consumers to invest in IRAs. All the brokerage firms and banks, all the mutual fund companies, all the financial magazines, and talk shows - they all do the same thing: They show you how wonderful IRAs are, and encourage you to send in your money.

What they dont' typically tell you is how to get the money out.

And that is certainly something you're eventually going to want to do. Therefoe, we need to talk about IRA withdrawals, because if you thought there were a lot of rules regarding contributions, wait until you get to distribution. You ain't seen nothing yet.

To start, let's visit Goldilocks.

The Goldilocks Rules

If you want to make a withdrawal from your IRA, you've got to be very careful. In fact, like Goldilocks, you must do it just right.

Goldilocks, you'll recall, was unhappy until she found a bowl of porridge that was just right - not too hot or too cold - and a bed that was jsut right - not too hard not too soft - and you, too, must make sure you handle your IRA distributions just right. Specificially, you must avoid withdrawing money too early, too late, or too little.

Goldilocks Penalty #1: Too Early
If yo withdraw money prior to age 59.5, you'll be subject to a "premature distributions" penalty of 10%. That's in addition to the regular income tax (both federal and state).

If you withdraw money from the Roth IRA prior to age 59.5 (or before five years have elapsed since your first contribution, whichever is longer), the penalty issue is extremely complex. Make sure you see a tax expert if you plan to withdraw money from a Roth IRA prematurely.

How to beat the 10% penalty on early withdrawals

While you can't avoid owing the income tax when you make a withdrawal form your Deductible or Non-Deductible IRA, you can avoid the 10% penalty - if you receive the proceeds in the form of Substantially Equal Periodic Payments.

Under SEPP rules, withdrawals must be made at regular intervals over a period of not less than five years or until you reach 59.5, whichever is later. For example, someone starting SEPP withdrawals at age 40 must continue to do so until age 59.5, while a 57 year old must do so until age 62.

While SEPP won't help much if you need all the money right away, it could help if you simply need a steady income stream.

Two ways to avoid the tax

2009-12-22T03:51:00.000-08:00

Here are two ways to solve the tax problem:

Solution #1: Use other savings
Take $20,000 from other savings, add it to the $80,000 your employer gave you, and roll over the full $100,000 into an IRA. Then, when you file your tax return in April, acknowledge the fact that your employer withheld $20,000 from your distribution, and you'll get it back as a tax refund.

There are three problems with this solution: First, most folks don't have $20,000 lying around to replace what the employer withheld. Second, you've got to wait until next April to get your money back (depending on what month you leave work, you could wait nearly a year). And three, most folks don't know they can do this.

Solution #2: Do a transfer
Transfers, rather than rollovers, are not subject to withholding requirements. Thus, instead of having your employer send the money to you, withholding 20%, instruct your employer to send the money directly to your IRA account. The IRS also allows you to receive the check from your former employer provided the check is made payable to your IRA custodian. Either method will avoid the 10% withholding requirements.

If you are changing jobs, the law also lets you demand that your old employer send your money directly to your new employer for depost into the new employer's retirement plan. Unfortunately, the law does not require that your new employer accept the money."

IRA Transfers

One of the ways to move your IRA is called a transfer. Through a transfer, you instruct your current IRA custodian to send your money directly to the new IRA custodian. You do not personally receive the money as an interim step, as you do with a rollover. Thus, there is no 12-month rule regarding transfers; you are permitted to execute them without limitation. Transfers, therefore, are very easy. You simply sign a form (given to you by your new IRA custodian) and the new custodian will do the rest. But transfers are slow. They often take 4 to 6 weeks to complete.

The delay should not surprise you. After all, what do you think your current IRA custodian does when it receives the transfer request? Loses it, of course! In my experience, the new custodian often has to send a second request to the old custodian before the transfer occurs. So be patient when doing transfers.

Have you made non-deductible IRA contributions?

2009-12-20T02:41:00.000-08:00

When IRAs were created, anyone with earned income was eligible. But the Tax Reform Act of 1986 placed limits on eligibility.

Consequently, many people who opened a deductible IRA in the early '80s continued adding to their accounts in the late '80s and into the '90s, but on a Non-Deductible basis.

Have you done this? Have you commingled Deductible and Non-Deductible IRA contributions into one account? It's a common mistake, and if you've done this, you've got a big problem: Unless you keep very good records, including IRS Form 8606 each year, you're going to be taxed on the entire account balance when you make withdrawals, even though only part of the money ought to be taxed.

The best solution is to establish two IRA accounts, one for the non-deductible contributions and one for the deductible ones. Label each account accordingly. For example, one account would read, "The IRA Account of Shirley Mason," while the other would read, "The non-deductible IRA Account of Shirley Mason." This way, it'll be easy to remember where the Non-Deductible monies are and how much you contributed on that basis. Simply place into the non-deductible account an amount equaling your total Non-Deductible contributions; leave all interest and profits in the regular IRA account. Contact your bank, broker, or financial planner handling your account for help correcting this problem.

Two great alternatives to the Non-Deductible IRA

Since you should not make a Non-Deductible IRA contribution, where does this leave you? Do you lose your only chance to let money grow tax-deferred?

Not at all! There are two excellent solutions to consider. To learn about the first, the Roth IRA. As for the other, see the various types of annuities available. With annuities, there's no tax deduction, but the money grows tax-deferred until withdrawal - just like a Non-Deductible IRA!

And the annuity gives you three major advantages over the Non-Deductible IRA:

There's no limit on the amount of money you can contribute each year, unlike the IRA, which limits you to $3,000;
you can dely withdrawals until age 90, unlike the IRA, which requires that you begin withdrawals at age 70.5; and
you don't have to deal with IRS Form 8606.

The non-deductible IRA

2009-12-18T02:31:00.000-08:00

Many Americans are not eligible to contribute to a Deductible IRA. For many of these people, an option is the Non-Deductible IRA. As the name suggests, contributions do not entitle you to a tax deduction.

All this raises a question: If you are not permitted to contribute to the Deductible IRA, should you contribute to the Non-Deductible IRA, assuming that you're eligibel?

No.

If you cannot deduct your contributions yet make one anyway, you must file IRS Form 8606, Nondeductible IRAs (Contributions, Distributions, and Basis), every year you add to or make a withdrawal from an IRA. This form tells the IRS that you already paid taxes on a portion of the money that you had contributed to the IRA.

What happens if you don't file the form, or if you file but fail to keep a record of it for the rest of your life? There is $50 penalty for failing to file, and if you don't keep your records in order, you'll have to pay taxes when you withdraw the money - even though you already paid taxes when you contributed to the IRA years earlier. Indeed, you'll pay taxes twice on the same money!

Occassionally, I come across someone who says Form 8606 is not a problem. "I do my own taxes, and I know how to do this," they say. But that's not the point! You've got to keep track of the form for the rest of your life, which could be 40 or 50 years from now, and I'm willing to bet that sooner or later (a) you're going to forget to file the form; (b) between now and retirement you're going to lose the forms you previously filed; or (c) you're going to become ill, and your spouse will take over the chore or filing the tax return - and your spouse won't know what you know.

Keep in mind that IRA rules are less than 20 years old, and the vast majority of people who have contributed to IRA accounts are still employed. Thus, all the attention has been focused on how to get money into IRAs, not out. Stockbrokers, for example, receive heavy training on how to establish IRAs, and they are well versed on the contribution rules, procedures, and limitations. But few brokers, and fewer investors, are familiar with the withdrawal provisions. It's a time bomb waiting to explode, and it's set to go off when today's generation enters retirement.

Should you choose monthly income or one lump sum?

2009-12-16T02:18:00.000-08:00

When you leave your company, you may be offered the choice of a monthly income or one single check, known as a lump-sum distribution. If you take a lump sum, you must provide for your own monthly income - for the rest of your life. That frightens many people, for what if you lose the money? It's so frightening, in fact, that many people refuse to take the lump sum. Instead, they choose the monthly income. That's the wrong move, for these reasons:

You are not in control of how your former employer handles your money.
Your monthly income is almost certain to be less than if you were to invest the money yourself. Employer-provided annuities are rarely competitive in the marketplace.
The cost of living will rise, but your monthly check will not. This will hurt as you get older.
In most cases, you won't ever have the chance to take the lumpsum again or leave it to your heirs.

For all these reasons, you're much better off investing your own money. So when your employer offers you that check, take the money and run.

When you do, you can put the distribution into an IRA to defer taxes, or you can keep the money and pay taxes.

Before you decide to retire, take a week off and watch daytime television. - Dr Laurence J Peter

Problems with Pension Max

2009-12-14T02:09:00.000-08:00

Problem #1: Health Risk
You must be healthy enough to qualify for the insurance. Solution: Obtain the coverage before you choose an option because your decision almost always is irrevocalbe. If you choose the single life option and then discover you can't buy insurance, your spouse will be in serious financial jeopardy if you die first.

Problem #2: Age Risk
The cost of insurance increases as you get older. Thus, if you wait until retirement to implement this strategy, the cost of insurance might be too high to make the strategy effective. Solution: Buy the insurance 10 years before retirement. By obtaining coverage at age 50 or 55, the cost is significantly lower, and you can even arrange it so that your premium payments stop by the time you retire, if you choose.

Problem #3: Income Risk
If you lose income from other sources, you won't be able to pay the premium. No premium, no policy. No policy, no benefit. Solution: Use a vanishing premium policy and be fully committed to funding it.

Problem #4: Inflation Risk
Pension max doesn't normally provide for increases in income, but your pension might. Solution: Alter the strategy to match your pension's benefits.

Pensions

2009-12-13T02:00:00.000-08:00

Pensions are technically called defined benefit plans. Through them, your employer promises to give you a specific monthly income (or in some cases, a lump-sum check in lieu of a monthly income) starting at retirement. The amount you receive is calculated by a formula that considers your salary, the number of years you've worked for the company, and other factors. The formula is different at every company, so check with your employer to learn how much you can expect to receive at age 60, 62, or 65, based on your employer's calculations.

Most workers are entitled to a pension at retirement are offered several options regarding how to collect the benefit. The two most common options are single life annuity (which gives you a monthly income for life, but which stops upon your death) and joint & survivor annuity (which provides you with a smaller monthly income but which continues as long as either you or your spouse is alive).

Single Life of Joint and Survivor Benefits?

When Tim chooses joint and survivor benefits, he's leaving Marcia a benefit payable upon his death. Quite simply, he's buying a life insurance policy! The cost of the policy in his case is $850 per month (the difference between the income provided by the single life option and the joint and survivor option), and the death benefit is $2,650 a month. But note these restrictions:

Marcia is not entitled to a lump-sum check. She gets only a monthly check.
Tim is stuck with the lower income for his entire lifetime, even if Marcia dies first. He can never return to the higher income offered by the single life option.
Tim cannot change the beneficiary from Marcia to other heirs.
Tim cannot name contingent beneficiaries in case Marica dies first; and,
Assuming Marcia outlives Tim, all benefits stop when she dies. There is no residual value or inheritance for heirs, and there is no compensation to Tim's family in the event she dies shortly after him.

An alternative to the joint and survivor option

For all these reasons, Tim chooses the single life option, and uses the extra $850/month to buy his own life insurance policy. This strategy is called pension maximization or pension enhancement. By cutting out the middleman (his employer), Tim got a better deal for these reasons:

If they both live:

The policy can become fully paid for, meaning they can stop paying premiums but the policy will continue to provide benefits; and
This strategy can cost less, letting Tim and Marcia enjoy the money they save every month.

If Tim dies first, Marcia can:

Take the entire lump-sum at any time if she needs it; and
Pass any assets she didn't use during her lifetime to children or other heirs upon her death.

If Marcia dies first, Tim can:

Cancel the policy and (depending on when she dies) get a refund of most or all of the premium he had paid; and
Name additional or replacement beneficiaries, such as children.

Spend-All

2009-12-11T01:29:00.000-08:00

The spend-all approach basically assumes that after retirement you will be able to live comfortably on your after-tax income, as long as you don't spend your principal. It is the oldest approach to postretirement planning; in fact, it was featured in the majority of the references I encountered when I first started doing my research in the 1980s. It was probably most applicable during the years after the depression, when inflation was very low and you could count on the stability of such things as preferred and utility stocks. In more recent times, the spend-all method is nonsensical if you have investments with a fixed rate of return, such as fixed pensions, bonds, or certificates of deposit (CDs) because they effectively go down in value every year due to inflation. It is also nonsensical when considering stocks or stock funds because dividends are a lot smaller than they were in the past, and funds distribute capital gains that, although income, vary appreciably from year to year and invade the basic principal.

As old as the spend-all method is, it did wisely advise shifting to more conservative investments such as bonds instead of stocks as you grow older. When life expectancies are short and savings are relatively small, a shift to bonds or CDs makes sense.

Not defining your terms: Mistake #2

2009-12-09T01:22:00.000-08:00

It's important to know when to use before-tax returns and when to use after-tax returns. Returns are the annual growth of your investments, assuming all interest and dividends are reinvested. A fixed bond that pays interest generally has a return about equal to the interest rate. Stocks have a return about equal to their annual dividends plus any annual growth in the per-share price. A stock fund with reinvested dividends tha began the year at $100 and ended the year at $110 would have a return of 10%. Before-tax returns represent the growth of investments without any tax considerations. You get before-tax returns from tax-exempt municipal bonds and the growth in a Roth individual retirement arrangement (IRA), assuming there are no state taxes. (Although mos of us refer to IRAs as individual retirement accounts, the IRS uses the word arrangement in its definition.) You also receive before-tax returns from a deferred tax account such as 401(k) or IRA, although you will later pay ordinary income tax on the withdrawals. Investments other than tax-exempt and deferred tax investments are taxed as soon as dividends, interest, and capital gains are realized. Such taxable investments grow at the slower after-tax rate, but the taxes may be at less than ordinary income rates when long-term capital gains are involved.

Most planning methods that try to separate IRAs and 401(k)s from taxable accounts make a mistake in preretirement planning because their definition of savings is incompatible with the conventional wisdom that deferred tax accounts grow at a before-tax rate and taxable accounts at an after-tax rate. They define savings as only that part of wages (including employer contributions) that go into your investments. They fail to ask if you are paying taxes on your investments from your wages. Except for unusual circumstances, most of us pay taxes from wages, not investments, because we don't want to make quarterly payments or face large year-end tax bills. Some people even overwithhold so that they get some money back at the end of the year. Since the taxes on the taxable investments are not deducted from investments but are paid from wages, even the taxable investments grow at a before-tax rate.

Therefore, preretirement planning programs that are mechanized to use after-tax returns for taxable accounts should define savings differently - and I've only seen one that does this correctly. In such a case, the correct definition of savings includes both the deposits from wages and that part of your income tax that was due on investment returns but was actually paid from wages, not investments. How many of us, for example, know how much of our income tax is actually due to the income from investments? You could do a separate tax calculation without including taxable interest, dividends, and capital gains and then subtract that income tax from the full taxes you owe. But how meaningful is that when the investment income changes your tax bracket? Albert Einstein was fond of saying that the most complex math in the world was on your tax return.

Very elaborate retirement planning programs, however, have been built around after-tax returns. A program is available from www.analyzenow.com. It's useful for people trying to make strategic decisions such as how to select IRA distributions or whether to get a reverse mortgage or buy long-term health care insurance. It requires very detailed tax and other information, including depreciation on investment real estate. Hundreds of professionals use the program, as do many laypeople, but the detail only helps to make better strategic decisions when comparing one alternative with another. With the possible exception of those with large real estate investments, it does not give a more accurate projection of how much you should save before retirement or how much you can spend after retirement than the very simple methods herein. Nor does it offer the historical perspective.

There is also confusion in most retirement planning methods with regard to the analysis of debt paymetns and the associated definition of postretirement expenses. Most methods prefer to leave this as a fuzzy area and avoid bringing up the subject, but when mortgage or other loan payments are a significant part of your budget, you better use a method that competently addresses the subject.

For those few visitors interested in delving into this subject, here's some more thought-provoking information: Most pre-retirement planning methods give you an annual budget that represents how much you will be able to spend each year in retirement. If the method asks you to subtract debt from investments, the budget does not include debt payments. If the method does not mention debt, the budget includes debt payments. In most preretirement planning methods any part of your debt payments that goes to paying off principal should be defined as savings, but I don't recall ever seeing that mentioned. In those preretirement programs in which you subtract debts from investments to determine a net investment value, at least part, if not all, of your interest payments should be considered savings. Net investment analysis assumes that debt is a negative investment. Therefore, debt interest reduces your returns. If you pay the interest to a creditor from your wages instead of from investments, the interest did not reduce your return.

Ignoring investments costs: Mistake #1

2009-12-07T00:53:00.000-08:00

Inflation-adjusted investment balances, after accounting for investment costs, decline quickly.

Indexes used to measure stock & bond prices are based on a size-weighted average of the prices of the particular group of stocks or bonds represented by an index such as Dow Jones Industrial Average of 30 very large companies, the S&P 500 for 500 large companies, or the Russell 2000 for 2,000 small companies. Since these are averages, you'd think that at least half of the mutual funds would be above the average and the other half would be below. In fact, because funds have large research departments that try to sort the bad investments from the good, you would think the average fund would do considerably better than the indexes' averages. Wrong! More than three-fourths of the stock funds fail to reach the average of the S&P 500, even though they can pick from over 5,000 stocks. Why? Because they must pay big wages to many people, do research, provide significant administrative support to their clients, pay for their impressive buildings, and so on. So the mutual funds either charge the costs directly in terms of a "load" when you purchase or when you sell, or take a little bit out all of the time, as do so-called no-load funds. We call those "costs." You cannot buy or sell an investment without paying someone to assist you, even if it's not in a mutual fund. And, on top of the cost of obtaining or disposing of the investment, you may pay an agent, advisor, or money manager a certain percent of your investment value each year. This adds to the cost.

Since very few funds were actually beating the averages, a number of mutual fund companies started marketing bundles of stocks or bonds that are contained in a particular index. That eliminated the research costs and the need for a highly paid guru to make the final buy and sell decisions. These index funds generally outperform the average funds but still don't quite reach the average, because there still are costs. Index funds' costs are most often under 1% of the fund's value. A small number are under 0.25%, but some mutual funds have costs in excess 5%.

Yet people representing financial firms really try not to talk about the costs. Unfortunately, that's often true of planners and planning programs as well. I've attended numerous seminars given by planners, financial firms, and money managers who are seeking additional business. They will highlight examples showing how their client's money would grow under their auspices by using examples from stock and bond indexes. They make no mention of the costs in the mutual funds they recommend, nor their own costs. I've witnessed presentations by firms charging thousands of dollars just to recommend some investments who then invest the client's money in high-cost mutual funds with large commissions, and then charge an annual fee of 1 to 2% on top of that. The poor client will be lucky to get much more than from a bank.

So how does this affect Mary who was reaching the age of retirement? She went to an accountant who charged a small one-time fee. He recommended she get a balanced fund with half stocks and half bonds. The fund she selected had a fee of 1.5%, which is a little high for someone who would shop around a big, but typical of a large number of investors. It's also typical of money managers, who often charge an annual 1% fee and select funds with costs of 0.5%, which is decidedly below the average cost of mutual funds. Suppose that fund had exactly the same underlying investments. Let's see what happens in the above figure as we include costs to add some more reality. Remember that the 1.5% cost really represents a 1.5% reduction in the investment's earnings each year.

The above figure has some valuable lessons. The accountant used the computer program's recommended return for the investment mix he selected. But that return was based on a long-term index for stocks and another for bonds. The accountant failed to reduce the return for his theoretical case by 1.5%. What happened to the real performance? It plummeted. If Mary had retired in 1960, the spending levels recommended by the computer would have exhausted her funds at age 73! Mary's investments only would last her desired 30 years if she had been lucky enough to retire in a year like 1950.

Funny retirement jokes

2009-12-05T23:01:00.000-08:00

Who's male and who's female
A woman came home to find her retired husband waving a rolled up newspaper round his head.

Wife: 'What are you doing dear?'
Husband: 'Swatting flies - I got 3 males and 2 females'

Wife: 'How do you know which gender they were?'
Husband: 'Easy - 3 were on the beer, and the other 2 were on the phone'.

Seven Retirement one-liners to work into your leaving speech

Active socially: Drinks heavily.
Character above reproach: Still one step ahead of the law.
Excels in the effective application of skills: Makes a good cup of coffee.
Internationally known: Likes to go to conferences and trade shows in Las Vegas.
Is well informed: Knows all office gossip and where all the skeletons are kept.
Tactful in dealing with superiors: Knows when to keep mouth shut.
Willing to take calculated risks: Doesn't mind spending someone else's money.

Three more helpful retirement jokes

The question isn't at what age I want to retire, it's at what income. - George Foreman
There is an enormous number of managers who have retired on the job. - Peter F. Drucker
I have never liked working. To me a job is an invasion of privacy. - Danny McGoorty, Irish Pool Player

Retirement Speech Jokes, Also Suitable for Appraisals

He would be out of his depth in a parking lot puddle.
She got into the gene pool while the lifeguard wasn't watching.
His men would follow him anywhere, but only out of morbid curiosity.
This man is depriving a village somewhere of an idiot.
This man has delusions of adequacy.
Some drink from the fountain of knowledge; buy she only gargles.
When he opens his mouth, it seems that this is only to change whichever foot was previously in there.

Priceless Antique?
Claire, after retiring from a busy life in business, travels around the country visiting antique shops trying to find bargains.

One day she goes to an antique shop in Stratford upon Avon, England. Here, Claire speaks to Victoria, the shop's owner, 'When I was in here last week I saw a big mug with a flat head that holds a lot of beer. I'd like to buy it.'

'Sorry,' replied Victoria, 'but I can't possibly sell you that.'

'Oh, what a pity, but why not?' inquired Claire.

'Because,' said the owner, 'that's my husband.'

Three Old Men
Three elderly gentlemen were talking about what their grandchildren would be saying about them fifty years from now.

'I would like my grandchildren to say, 'He was successful in business' , declared the first man.

'Fifty years from now, 'said the second, 'I want them to say, 'He was a loyal family man' .

Turning to the third gent, the first gent asked, 'So what do you want them to say about you in fifty years?'

'Me?' the third man replied. 'I want them all to say, 'He certainly looks good for his age!'

Classic Proposal
Charlie, aged 86, was very contented living in the Clarendon Nursing Home just outside Stubbington, Hampshire, England. After meeting Maisie, 77, he grew even happier and fell deeply in love. Only last week Charlie plucked up the courage, got down on his knees and told her there were two things he would like to ask her.

Maisie smiled and replied, 'Alright.'
Charlie asked softly, 'Will you marry me?'

Delighted, Maisie answered him, 'Yes.' She then asked Charlie what his second question was.
He replied, 'Maisie, will you help me get up, please?'

Health-care costs

2009-12-04T22:51:00.000-08:00

Health costs in retirement are likely to be higher than they were while the person was employed. While Sara and I were working, we both had company health insurance, which covered medical, dental, and prescription bills. When we retired, we lost our company insurance.

Fortunately, we were both over 65 and thus were eligile to receive Medicare benefits. However, had we retired at age 62 - an age when many people do retire - we could have been without health insurance for several years. The alternative would have been to buy private insurance until we were old enough to go on Medicare. That insurance would have been quite costly - and would have made a rather large hole in our retirement budget.

Neither of our employers had retiree health insurance plans available for us, so we signed up for Medicare, a national program that pays hospital and medical bills for 43 million people. In 2006, Medicare also began to pay for prescription drugs. In fairness to our former employers, The Washington Post provides retirees with an annual cash stipend, which can be used to buy a secondary insurance policy. The Post also allows retirees to buy lost-cost catatrophic medical insurance coverage.

General Electric, for its part, provides its retirees with a secondary insurance policy that costs $162 a month for the two of us - a relative bargain. Equally important, GE allows its retirees and their spouses to join a prescription benefit plan that provides a 90-day supply of a medication for $25.

When you begin working on your retirement budget, don't forget that you probably will have to buy a secondary insurance or medigap policy to cover some of the expenses Medicare does not. You also may have to pay for some of your prescription drugs; the Medicare drug program is limited.

The bottom line is that Sara and I are spending more money on our health care in retirement than we did while we were working and had company coverage - even though we paid for our company coverage.

Medicare, by the way, does not even pretend to cover all hospital or medical costs. Our GE secondary insurance plan covers some of the bills that Medicare does not pay. But even so, our annual out-of-pocket expenses for health care are perhaps 50 percent higher than when were working.

We also worry - as we get older - whether we will encounter new medical problems and thus face even higher costs in the years ahead. Medical costs can be real budget busters.

When you are thinking about how much health-care money to include in your retirement budget, you may want to consider the cost of a long-term-care policy. For a 65-year-old couple, these policies can cost about $6,000 per year, depending on the terms of the policy. Sara and I are covered by a group policy we bought through The Washington Post. It costs $2,000 a year for both of us - which is relatively inexpensive.

Retiring with your spouse: The togetherness test

2009-12-03T21:58:00.000-08:00

When you start to weigh the pros and cons of whether to retire, take a few minutes to think about what life will be like for you after you leave your job - especially if you are married.

When my wife, Sara, and I retired from the business world, one of the questions we faced was "What will it be like to stay at home and spend 24 hours a day with each other?"

Although we had been married for more than 40 years, we had no idea what the answer would be. In all those years, we had never been home together full-time. After our marriage, Sara spent 18 years at home raising our three children. Then she went to work at GE.

We both held busy, demanding jobs, Sara worked an early shift and I worked a late shift, so we didn't see each other on weekdays for more than a few hours. On weekends, our time was taken up with chores, family activities, or social engagements. In short, there wasn't much time to be bored. If we had a quarrel, we could go to our respective offices the next day and cool off.

Our way of life changed dramatically when Sara retired from GE and I retired from the Post. Gone were the established routines of office life and the constant demands of our jobs. We enjoyed a new sense of freedom, but it was accompanied by a feeling that we weren't exactly the same people any longer - that we'd lost our purpose of life.

After several years, I can report that our concerns about fulltime togetherness have faded and we've adjusted reasonably well to our new lifestyle. How were we able to do that? There were two main reasons:

1. Sara and I did not go through the "turf battle" that causes problems for many retired couples. A turf battle can arise when a woman, who views the home as her domain finds that her retired husband is underfoot all day and interferes with her routine. She may feel that her territory has been invaded. He may feel that he is unwelcome in his own home - and is unable to understand why.

A glimpse of the problem can be seen in the old joke about the wife who says to hew newly retired husband, "Just remember, I married you for better or for worse. But not for lunch."

Sara and I avoided a turf battle in part because she had a long career at GE. So while she did not escape the daily household chores that fall to most working women, she had not been a full-time homemaker for two decades before retirement.

In addition, we sold our house shortly before we retired and moved to an apartment. The effect was to create a new domain where neither of us had territorial claims.

2. Sara and I organized our lives so we had time alone and time together, Sara retired first. By the time I retired 2.5 years later, she'd already developed a schedule of social and community activities that kept her busy on Monday, Tuesdays, and Wednesdays.

I quickly realized that Sara's schedule was an opportunity for me to get both the "space" and the time that I needed. On the days she is busy, I work on my freelance writing, take care of family paperwork, exercise at the community fitness room, have lunch with friends, or play golf.

So, for part of the week, we each have our own schedules. In time, with Sara's help, I began to understand the need that women have for the companionship of other women. Sara explained that her games, lunches, and shopping trips all help fill that need.

"I like to spend time with my women friends and talk about the things women are interested in," Sara told me.

Living in a retired community, I'ave also observed that retired men don't make new friends with other men as easily as retired women make new friends with other women. Several men have told me that they miss their male colleagues at the office and all chatter about football, baseball, basketball, etc. That's one of the things I missed about my office.

Recognizing that fact, I joined the Lions, an international service organization. Our local club is mostly male, which gives me an opportunity to meet and spend time with other men my age.

On Thursdays, Fridays, Saturdays, and Sundays, Sara and I do things together: We might go to a new Smithsonian museum exhibition in Washington DC, take a day trip with friends to the eastern shore of Maryland, or just visit a shopping mall. I prefer museums to malls; Sara prefers malls. We keep the pace by taking turns.

Since we retired, we've also solved the weekly food-shopping problem. We do it together. For years, Sara did almost all the food shopping, often after a long day's work. Now that I'm retired, I don't think she should lug all those grocery bags herself. After all, I'm the one who's lifting weights every day.

In the beginning, our shopping experiences were quite tense. We had different priorities about what to buy and different recollections of what food items were still in the cupboard or refrigerator. Apparently, we were not alone. So I promised myself that when Sara picked an item off the shelf, I would stop saying, "Do we really need that?" Ever since then, our shopping excursions became more relaxed.

On evenings when we eat at home, Sara and I get through dinner by using a team approach. She cooks and I clean up. The system has a double benefit. The meal is always excellent because of Sara's culinary skills, and that makes me happy. And Sara doesn't have to deal with the mess, which makes her happy.

This is the kind of partnership married people should strive for at all stages of their lives. But it's especially important when they're both retired.

Sara believes that if a couple wants to be happy in retirement, they need to be even more compatible than they were before they retired.

"When you retire, you'd better be friends," Sara says, "because you're going to be spending a lot of time together."

The taxman cometh

2009-12-02T06:13:00.000-08:00

In your retirement budget, you may need a special reserve for the money you owe for federal and state income taxes. During the years I worked, my employer always withheld money from my paycheck for income taxes. Usually the amount of my withholding would be close to the actual amount of money I owed Uncle Sam at tax time. So it was easy to settle up with the IRS.

When I retired, I neglected to ask the Post to put tax withholding on my pension check. My Social Security check also did not have withholding. Sara and I later asked for withholding to be put on our pension checks, but we have not gotten around to putting withholding on our Social Security checks [To do that, fill out IRS Form W-4V (Voluntary Withholding Request), and submit it to your local Social Security office.]

Initially, the effect of not having withholding on our Social Security and pension checks was that I had to file quarterly estimated income tax reports with the IRS and my state tax office. It also meant that I had to put aside a certain amount of money each month to cover the quarterly payments. I wasn't used to doing that, and it played havoc with my efforts to balance my family budget.

And, here is something else you should be aware of when it comes to taxes in retirement: Your Social Security payments may be taxable. Ignoring the fact that you paid taxes on the money you put into Social Security for many, many years, Uncle Sam will tax up to 80 percent of your Social Security benefits, depending on your taxable income.

Indeed, it is a good idea to talk to an accountant before retiring, to find out what your tax situation will be when you retire and what effect those taxes will have on the amount of money you'll have available to pay for your living expenses.

More about taxman

The beauty of 401(k) plan is that it permits you to save money in a tax-deferred account for many years while you are working. It can reward you by producing a sizable retirement nest egg. But when you reach the magic age of 70.5 years, Uncle Sam says you have to start withdrawing money from that account and paying taxes on your withdrawals.

As you prepare your retirement budget, especially if you are nearing 70.5, remember that every dollar you withdraw from a tax-deferred IRA will be taxable. If, for instance, you taxable income is $40,000 and you take a $10,000 IRA withdrawal, your taxable income will become $50,000 and you will be taxed accordingly. So here again, you may need to set aside money in your budget for taxes - money you'd probably like to spend on other things.

Can I afford to retire?

2009-12-01T05:51:00.000-08:00

Now that you've decided that you're ready to retire - or atleast decided that you're ready to think about is seriously - let's talk about whether you can afford to retire.

On the face of it, the arithmetic of retirement is fairly simple. It's a matter of income versus expenses. The key question is, Will your monthly income be sufficient to cover yoru monthly expenses?

To get started, take a sheet of paper. On one side, list all the items of monthly income that you expect to receive when you retire. Add them up. On the other side of the paper, list all your monthly expenses and add them up. Then compare the numbers to see whether you have enough income to cover your expenses.

If you do have enough income, you're off to a good start. If you don't, you have to go to the next step where you have two basic choices: You can raise your income or lower your expenses. Either, as I learned from personal experience, is easier said that done.

However, there is another choice: Use your savings to help close the gap between income and expenses. Using your savings is a perfectly reasonable idea. After all, that's why you saved that money in the first place. But you must plan your withdrawals carefully; you don't want to dig into your savings too often or too deeply. Your nest egg may have to help support you for 15 or 20 years.

A change in financial situation

One of the things that surprised me about retirement was the dramatic way in which my financial situation suddenly changed. One day I was receiving a sizable paycheck. The next day, it seemed, my paychecks had stopped. Intellectually, I was aware that my paychecks would stop when I retired. But I guess I wasn't fully prepared for the emotional jolt of losing that life-long security blanket.

In fact, there were several other major differences between working and retirement that I hadn't anticipated. Here are some of them:

Hello, fixed income

As full-time retirees, Sara and I are now living on a fixed income consisting mainly of our monthly Social Security benefits and our pension checks. We are fortunate to have pension checks. These days, many people do not receive pensions when they retire. But even if you get both Social Security benefits and a pension check, they are not likely to increase much over time. Social Security gives its beneficiaries an annual cost-of-living adjustments, which is usually quite modest. Most pensions are not adjusted for increases in the cost of living.

Goodbye, raises

When we were employed full time, our salaries were subject to occasional improvement. We were eligible for raises and promotions, both of which boosted our incomes. We were able to work overtime, which also increased our take-home pay. And, occasionally, we received bonuses. In short, there was a reasonable chance that we could increase the amount of money we made each year. But as retirees, we don't have those opportunities.

That means that the raises, overtime, and bonuses that helped pay for our new cars and summer vacations are not available in our retirement years. We'll have to find other ways to pay for large-ticket purchases or trips.

Reasons not to retire: You'll miss the people you work with

2009-11-30T05:27:00.000-08:00

The idea of not having to go to your job every day may seem mighty attrative, but ask yourself this question:

"Am I really ready to give up working and everything that goes with it?" That "everything" includes not only the challenges and frustrations of your job, but also the familiar, and even welcome, daily routines at work.

Ask yourself also, "Will I miss the people I work with?"

These are not facetious questions. Although we like to scoff at the idea that we love our jobs, work plays an important role in our lives. It provides us with a sense of purpose and accomplishment and, of course, a place to go in the morning. For many of us, our job site is our home away from home, the place where we spend time with a network of friends and colleagues.

That network tends to dissolve quickly when you retire and step out of the working world, as I found when I retired from The Washington Post after a 45-year career as a reporter, editor, and columnist. So it's not surprising to me that many retirees say they miss work - or at least the friends and shared experiences they had at work.

This sense of loss hit me after I retired from my job as a financial writer at the Post and before I went back to writing part time. It took me quite a while to figure out why - even though I loved retirement - I seemed to miss working. I was puzzled.

I knew, of course, why I liked retirement: It gave me that wonderful sense of freedom I mentioned earlier. After 45 years of working, it was delightful to be able to live by my own timetable. But why did I miss working? Eventually, it dawned on me that what I really missed was not my work, but my workplace.

My office had been my second home, a place where I could chat with friends, catch up on gossip, swap office rumors, and help the other Monday morning quarterbacks decide what to do with the Washington Redskins. When I left the paper, I left all that behind. And I missed it.

You don't have anything else you'd rather do

My friend Hy Avrut, who is 80, owns his own business and still goes to work every day. When I ask him why he doesn't retire, he says, "I don't know what I would do with myself." Hy is a man without hobbies, and after 55 years of running his own business, he says he has no appetite for spending his time in shopping centers. He recently agreed to take off Wednesdays so he could play golf. But he says that if he retired, he would miss the interaction with his customers and even the headaches of his business.

Hy puts it this way: "I'm healthy and energetic, and I want to stay busy. Regardless of what the calendar says, I'm still able to do what I've done all these years. Maybe one of these days I will have to slow down. But right now I'm doing fine."

Reasons not to retire: You like working

2009-11-29T04:59:00.000-08:00

It sounds contradictory: You can be ready to retire, but not ready to give up work. What does that mean? It means that work is a habit that is hard to break. As strange as it may seem, especially on those dreadful days when everything goes wrong, work is an integral and even necessary part of our lives.

Many of us began working as teenagers and have never really stopped. In our early years, our jobs provided the money that made it possible for us to pay for the necessities of life. Later on, our work made it possible for us to pay for some of the luxuries of life. But for most of us, the meaning of work goes far beyond our paychecks. Our jobs and careers have given us our greatest challenges and our highest achievements. Our careers have helped us find our role in society. And for better or worse, our work has become our identity.

Soon after Stan Hinden retired, he began having identity problems. For 23 years, he had been calling people on the telephone and saying, "This is Stan Hinden of The Washington Post." After he left the newspaper, when he made a phone call he was just "Stan Hiden," and I felt I had lost a piece of my identity.

This problem sometimes cropped up at social gathering where he would meet people for the first time. At these affairs, people often look for conversational openings by asking each other, "What kind of work do you do?" In American life, it is common for people to measure the worth and value of other people by their work and titles. This tendency is unfortunate, but it happens all the time.

After he retired and people asked him what kind of work he did, he tended to stumble. He found himself saying, "Well, I'm retired. But I used to be a writer at The Washington Post." The phrase "used to be" didn't come easily to his lips, as he says, It was like saying, "I'm a has-been." And he didn't like that feeling one bit.

Thus, I found that not only did retirement tamper with my identity and image of his, but it put him in a "has-been" category that was uncomfortable for someone who had led a vigorous working life.

Reasons to retire: Your job is changing

2009-11-28T04:42:00.000-08:00

My friend Larry, who is a scientist, retired from the federal government after 35 years. He was age 60 when he decided to leave. He told me that he was undecided about retiring quite that early, but organizationally, his agency was in a state of flux that he felt was not personally satisfying.

A year before he left, Larry said, potential budget cutbacks had caused major personnel reassignments in the agency; he had been moved to a position that was far afield from his specialty. In addition, old-timers were being encouraged to leave with buyouts.

So he assessed his situation and tried to figure out whether he could afford to retire. He decided he could. His government pension would be about 45 percent of his salary, and in two years he would be eligible for a small monthly Social Security benefit because he had taught college classes part time for many years. He also would continue to earn money from teaching, and he planned to accept a three-year research fellowship that paid fairly well. "The money and research combined made it interesting," he said of the fellowship. So, at that point, Larry said, it seemed like a good time to leave. And he did.

"It was time for me to be unhooked from an unchallenging position and to get more involved in what really interested me, which was teaching and scientific study," Larry said.

Today, Larry is doing what he wanted to do. He is teaching at a local college 12 hours a week and working on technology projects as part of his fellowship. And, he says, he's happy to be "retired."

Reasons to retire: You've got more compelling things to do

2009-11-27T04:34:00.000-08:00

As we age and gain experience, we often find that our goals in life become clearer. So it was with my friend, Jane Hoden. Religion, faith, and community service had long been the cornerstones of her life. And inwardly, she knew that when she retired some day, she would find a way to fulfill her personal commitment to be of service to others.

"I believe God has a plan for our lives, which is revealed in time," Jane says.

"This past year," Jane recalled, "my mother lived with us. It gave us great insight into what life is like for a person who is elderly, has significant health and financial issues, and feels that life is not within [her] control."

Jane said she soon realized that while churches focus on the needs of youth, the newly married, or active adults, they rarely address the needs of seniors. The more Jane studied the problem, the more she became convinced that forming a ministry for seniors was destined to be her calling in retirement.

So, in the year 2000, Jane, who is 55, retired from the federal government, where she had worked for 31 years as a public information specialist and, most recently, as the manager of the news division in her agency. Her government pension was reduced somewhat because she took "early retirement." But she didn't believe money would be a problem. Her husband, Paul, is a retired Air Force colonel with his own pension, and he works part time as a consultant.

"We looked at his income and at my income in retirement, at our savings and our expenses, and we decided we could afford for me to retire," Jane said.

To enjoy an active retirement and pursue Jane's ministry for seniors, the couple moved to Virginia Beach, Virginia, where they soon began their efforts at the Wycliffe Presbyterian Church.

What is Jane's goal? Not to replicate many of the excellent social services already avilable to seniors. Rather, she says, her mission "is to be a presence for retirees who need a connection to people who will provide support and caring." Jane believes that she and other volunteers can brighten the lives of many seniors who are lonely and isolated.

Retiring at 55 was "a golden opportunity," Jane says, "I'm still young enough to make a contribution for another decade." She likes the idea of doing just that.

Reasons to retire: The time is right

2009-11-26T04:09:00.000-08:00

If there is "a time under the sun for everything," then surely there is a time in your life when you can look in the mirror and rightfully tell yourself, "I've worked hard all my life. I've met every challenge life has thrown at me. It's time for me to stop working and to start living life my own way. These are the years that belong to me."

If this is how you truly feel, that's fine. Once you retire, you'll be fee to shape your life in a manner that give you the greatest satisfaction and happiness. But to make the most of your new freedom, you'll need a plan.

In a way, retiring is like going on a trip abroad. You wouldn't just pack a suitcase and board a plane. You'd try to prepare for your journey. You'd read guidebooks about the places you plan to visit, study currency exchange rates, and find out what kind of weather to expect. And, of course, you'd prepare an itinerary so you'd know where you were going and when.

Similarly, if you want your journey into retirement to be successful, you must do two things: First, equip yourself with the information you'll need on your journey into the world of Social Security, Medicare, medigap, long-term care, pensions, and 401(k) plans. Second, decide what you want to do in retirement.

Doing nothing is not a viable option for most people. Studies show that people who retire from active careers and become couch potatoes often suffer from depression and other ills associated with feeling useless and unwanted.

Your retirement plan can take many forms. You can spend your time improving your golf or tennis game, coaching a kids' soccer or baseball team, working for a service club such as the Lions or Kiwanis, or volunteering for a charitable or community organization. Many retirees enjoy spending time with their children and grandchildren. I know I do.

Retirement is a great time to complete some of your long-delayed personal projects. You may want to take some college courses, learn to play a musical instrument, or try your hand at writing mystery novels or painting. Many retirees - even those starting at late ages - demonstrate unusual creativity and artistic skills.

Whatever you decide to do in retirement, your plan should have one main objective: to keep yourself mentally and physically active and in close contact with other people. That is the way to achieve a successful retirement.

Are you ready to retire?

2009-11-25T03:50:00.000-08:00

When the stress levels at work are unbearable, it's easy to be flippant and shout, "You bet I'm ready to retire. Let me out of here!"

At such moments, it's also easy to fantasize about all the things you could do if you didn't have to go to work every day. You can see yourself soaking up the sun on a tropical beach, whiling away the hours on a golf course, of having gobs of time to read, watch movies, or trade stocks on-line.

You think about all the things you've wanted to do, but never had time for: a cruise around the Greek islands, a tour of Australia and New Zealand, watching the bullfights in Spain, or enjoying Carnivals in Brazil.

And then you suddenly realize you could even by a season ticket for your local baseball team and go to games in the middle of the week! What a luxury!

It's also quite wonderful to think about the things you could give up: all your bosses, all your memos, and all those boring meetings. Gone, too, from your life would be those rush-hour traffic jams and the frustrations of your daily commute. If your job requires you to travel, you could stop bouncing around in air-planes and trying to sleep on lumpy hotel-room pillows.

As a retired person, you'd be free to make your own schedule, to do what you want, and go where you want when you want. Ah, freedom!

But wait! Remember, the old adage: If it sounds too good to be true, it probably is. Like a lot of daydreams, these visions of retirement may or may not be realistic. They may not even be what you really want when you retire.

The fact s that when you face the question "Am I ready to retire?" your answer may have little to do with your fantasies and a lot more to do with your age, your health, your family, the nature of your job, your financial situation, and your outlook on life.

So to be realistic let's look at the pros and cons of whether you are ready to retire. We'll discuss three good reasons for retiring and for not retiring.

Then we'll talk about people who have it both ways: They retire and - guess what? - they go back to work, usually part time. As people live longer and healthier lives, the part-time option is becoming more and more popular.

We'll also look at what life is like for married couples after they retire. And we'll talk about the psychological impact of retirement - how you can go from a busy, even frantic, working life to a laid-back, but productive, retirement.

Defined- Contribution Plans

2009-11-24T02:48:00.000-08:00

Defined-contribution plans, such as your 401(k), are another matter. With these plans, employees or employers (or both) make contributions. The investments are usually employee directed, and there's no guaranteed payout.

But when fully vested, the account legally belongs to the employee, which means that you're generally protected even if your employer goes bankrupt. So your investing habits will most likely pose more risk to that nest egg than any employer mishandling. (Much more on those investing habits later.)

While 401(k)s are becoming more like pensions, with more firms automatically enrolling workers and some plans now offering annuity options, they're really quite different. You - not your employer - invest the money. What you get in retirement depends on how much you contribute and how well you manage that sum.

Thus, the burden is on you to educate yourself and perhaps consult a financial advisor to see if you're investing the right amounts in the right vehicles. Generally, you want to contribute as much as you're allowed in 401(k) and 403(b) plans, as well as maxing out on post-tax Roth IRAs. Diversify your investments and become a bit more conservative as you near retirement. Avoid holding more than, say, 20 percent of your 401(k) in your company's stock. You don't want an Enron-like situation to bring down your entire retirement.

Not what the Pundits say

Research has proven that a diversified portfolio of stocks (and real estate) has consistently, over the long term (20 years or so), what's called a real rate of return - that is, a gain above and beyond the rate of inflation. According to Ibboston Associates, there has never been a 15-year period when an investment in the broad stock market, as measured by the S&P 500 index, produced a negative return. Further, there has never been a 20-year period when the stock market hasn't produced a rate of return that didn't exceed the rate of inflation. So if investors want to minimize the risk of losing money in their equity portfolio, they should diversify, and plan on investing for a minimum of 15 to 25 years.

This buy-and-hold advice may be contrary to your instincts. It's also contrary to much of the advice, solicited or not, that we receive. Most of us want to move money around when things aren't going our way. And many pundits think they can predict with reasonable accuracy when to be in or out of the market. "Buy great stocks and do your homework," they urge, "then sell when they're no longer great stocks."

But that assumes you can analyze the ups and downs of companies as well or better than full-time professionals and determine what to buy, when to buy, and, more important, what and when to sell. Even the professionals have a tough time doing that consistently. Some investors, professional or otherwise, follow strict buy-and-sell disciplines, read stock charts religiously, have proprietary timing models, and employ sophisticated technical and fundamental analyses. Others subscribe to magazines and newsletters to help them decide how, when and what to sell or hold.

Defined Benefit Pensions

2009-11-23T02:48:00.000-08:00

In days gone by, company-paid pensions - known as defined-benefit plans as opposed to the self-directed defined-contribution plans like 401(k)s - didn't warrant much thought. A pensioner just cashed his or her monthly check and hoped for an occasional hike in benefits. But poor stock-market results and low interest rates on fixed income have hampered the return on pension investments. Plus, many companies with aging workforces have failed to set aside sufficient assets to pay the promised benefits. Meanwhile, the number of active workers covered by company pensions is fast declining. That's because employees are now less likely to stay at one firm for a long time. This is both because pension plans are costly to run, and at some firms they've taken a backseat to stock options and other benefits.

As a result, less than half of households receive pensions, down from two-thirds 20 years ago. And if you're lucky enough to have one, you'd be wise to keep an eye on your former employer's financial well-being.

The fiscal health of America's private pension plans worsened again in 2005, accroding to the federal agency that's assigned to pick-up the pieces. US firms have underfunded their defined-benefit plans by a total of $450 billion, the Pension Benefit Guaranty Corporation (PBGC) reported. The PBGC took over 120 defined-benefit pensions in the past year and now covers 1.3 million active and retired workers. When it takes over a pension system, benefits are usually cut, some-times severely.

What's more, PBGC is not a bottomless well. While it collects roughly $600 million a year in premiums from the private sector, that's far short of what's needed to pay the pensions of companies that default. As a result, PBGC itself now runs a $23 billion deficit. While the PBGC is charged with making sure that pensioners get at least the minimum benefits, that may be a good deal less than you planned on. And with the rescuer now in need of a life preserver, that's an added reason for being watchful.

What does all of this mean for you? Probably nothing if your employer is in good financial shape. but if it's a shaky company or in an unstable industry, you should take steps to protect yourself. You can do so by studying your pension plan's benefits compared to the maximum benefit offered under the PBGC. Compare retirement ages for each plan. Scrutinize all notices and statements, ask questions, get regular updates as you near retirement, and - yes! - build independent savings.

Social Security

2009-11-22T02:47:00.000-08:00

Social Security reform, including the system's very future, is going to be debated over the next several years. Trustees who oversee Social Security predict that by 2040 the trust fund will be depleted, and payroll taxes will cover only about 73 percent of the promised benefits. One of the biggest reforms bing offered up is privatisation, meaning that workers would be able to divert some of their Social Security taxes into their own investment accounts. By investing on their own, taxpayers should be able to build up more money for retirement over the long haul than the scant returns earned under Social Security, or so the idea goes.

I'm all for giving Americans the freedom to work hard and build up assets. That's a big part of what has made America great. But letting workers divert some portion of their Social Security payroll taxes into individual accounts so they can invest in stocks? For some, that may be a good idea. But most people would need some serious financial education.

Privatization would be a plus for the financial industry, but would it be good for the workers? It might if investors properly diversify and buy and sell wisely... and if they have the discipline to be successful investors. But the evidence shows that they often don't. While many investors swear that they're buy-and-hold to the core, most are what are called "accidental" market timers. And those accidents are costly.

Dalbar Inc, a financial-services information firm, found that the average equity investor earned 3.51 percent annually between 1984 and 2003. That's slightly better than inflation (about 3 percent) during those two decades, but far short of the 12.98 percent annual gain for the S&P 500. (Investors did better in 2004, earning 12.6 percent, according to Dalbar.)

But isn't that long-term figure scary? Despite the fact that stock-market returns far exceeded inflation, the returns of most fund investors didn't. That's because they buy when a sector is hot, then they sell in a panic when it starts dropping. Thinking he or she is being smart and defensive, the average investor dumps stocks on the downturn and buys what the meida buzz says is the next Big, New Thing. But of course, by that time the hot stock or hot fund is starting to cool. And so it goes, in a downward spiral.

The average holding period, Dalbar found, was just over two years. That, in itself, is a recipe for disaster. Is that how we want folks to invest their Social Security money? Is that better than the current system of having the government invest this money in Treasury bonds? Those bonds now pay about 5 percent. But higher returns - even for savvy investors - come with higher risks.

So, I'm sad to say, here's the honest truth: Privatization of Social Security, even if it works, won't come soon enough for most of us. Even if the problem of too many beneficiaries being supported by too few workers is fixed, Social Security just isn't going to be enough. After all, the system was always intended to play a supporting role, not be the main attraction. Increasingly, it's up to you to make sure you have some other actors in your drama.

Why you need strategies, not stock tips

2009-11-21T23:51:00.000-08:00

Imagine that it's late 2004. You're in your 60s and saving for retirement in a 401(k) plan. Maybe you're planning to quit your job soon. You take a peek at your account balance at the end of 2004, and what do you find? That despite regular contributions and an expected growth in stocks, your savings has actually shrunk over the previous five years.

That's right. The average account balance for those in their 60s was $136,400 at year-end 2004, down from $143,161 at year-end 1999, according to a study by the Employees Benefit Research Institute and the Investment Company Institute. In effect, these soon-to-be-retired workers had run in place for five years. Instead of having something like a quarter of a million dollars set aside for retirement, they hadn't even been able to hold on to what they'd amassed five years earlier.

For those workers, crunch time had indeed arrived. They needed a new strategy - quick. Their old strategy probably was just to shovel money into their retirement account and let the stock market do the rest. Clearly, that didn't work. Now their new plan would most likely need to include some previously unimaginable options... like working longer, moving to a less expensive (and perhaps less desirable) part of the country, taking out a reverse mortgage, or something else that they hadn't planned on. Instead of retiring in comfort, and safety, they find that they may need to just keep on... keepin' on.

Ought to be doable

Retirement looms ahead for all of us. We don't want to become hostages to the vagaries of the stock market, so we each need to come up with a plan that gives us steady income in the short term and smooths out the market's peaks and valleys over the long run. To come up with a workable strategy is doubly important now that our governement and our employers can no longer be counted on to bail us out.

Many people - and you're probably among them - worry about outliving their savings. A survey by the Guardian Life Insurance Company reported that 80 percent of baby boomers, for example, are concerned about having adequate retirement income. But half said that they aren't sure how much money they'll need - and fewer than one in four (24 percent) said they were on track to amass sufficient retirement savings.

Yet this goal of creating a reasonable retirement, while it will take some work, ought to be doable for most of us. You don't need to be an investing genius, but you do need to pick a good mix of investments, and over the long term they need to perform well, though not spectacularly well. Creating such a mix and fashioning a decent retirement out to be within the reach of motivated, intelligent individuals.

However, that will mean becoming financial adults now and seeking to become more investment savvy, something we haven't always been too keen on. For instance, many really don't know how to save or understand how money compounds or how inflation eats away at savings. According to the Guardian study, 76 percent of all boomers believe that saving $100 a month from age 30 to 65 will yield greater returns than saving $100 a month from age 21 to 30. In truth, because of compounding, the younger investor who saves from age 21 to 30 will have a larger nest egg when he or she turns 65. Also in the Guardian study, 76 percent said they would be satisfied with an investment that grew from $10,000 to $15,000 over 20 years. While that's a 50 percent gain, it's only 25 percent annually, less than the historical rate of inflation. Result: You'd end up with less purchasing power, not more.

So we must become better students of money. We also need to acquire a better sense of the big picture. So before I get into the specifics of what you need to do, let's look at how you're going to be affected by ongoing changes in financial affairs and how the usual ways of investing aren't stacked in your favor.

Retirement Quotes #5

2009-11-20T04:45:00.000-08:00

Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money.
- Jonathan Clements

Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.
- George Burns

You are only young once, but you can stay immature indefinitely.
- Author Unknown

Youth would be an ideal state if it came a little later in life.
- Herbert Asquith

Retirement is the ugliest word in the language.
- Ernest Hemingway

Golf is a day spent in a round of strenuous idleness.
- William Wordsworth

First you forget names; then you forget faces; then you forget to zip up your fly; and then you forget to unzip your fly.
- Branch Rickey

In my retirement I go for a short swim at least once or twice every day. It's either that or buy a new golf ball.
- Gene Perret

Sometimes it's hard to tell if retirement is a reward for a lifetime of hard work or a punishment.
- Anonymous

The reason the pro tells you to keep your head down is so you can't see him laughing.
- Phyllis Diller

If you drink, don't drive. Don't even putt.
- Dean Martin

If you are going to throw a club, it is important to throw it ahead of you, down the fairway, so you don't have to waste energy going back to pick it up.
- Tommy Bolt

Retirement kills more people than hard work ever did.
- Malcolm Forbes

Retirement: That's when you return from work one day and say, "Hi, Honey, I'm home - forever."
- Gene Perret

Retirement Quotes #4

2009-11-19T04:41:00.000-08:00

I'm now as free as the breeze - with roughly the same income.
- Gene Perret

Half our life is spent trying to find something to do with the time we have rushed through life trying to save.
- Will Rogers, Autobiography, 1949

When you retire, you switch bosses - from the one who hired you to the one who married you.
- Gene Perret

The money's no better in retirement but the hours are!
- Anonymous

When men reach their sixties and retire, they go to pieces. Women go right on cooking.
- Gail Sheehy

There's never enough time to do all the nothing you want.
- Bill Watterson, Calvin and Hobbes

Retirement without the love of letters is a living burial.
- Seneca

Age is only a number, a cipher for the records. A man can't retire his experience. He must use it.
- Bernard Baruch

A gold watch is the most appropriate gift for retirement, as its recipients have given up so many of their golden hours in a lifetime of service.
- Harry Mahtar

Don't underestimate the value of Doing Nothing, of just going along, listening to all the things you can't hear, and not bothering.
- Pooh's Little Instruction Book, inspired by A.A. Milne

Retire from work, but not from life.
- M.K. Soni

Sometimes it's important to work for that pot of gold. But other times it's essential to take time off and to make sure that your most important decision in the day simply consists of choosing which color to slide down on the rainbow.
- Douglas Pagels, These Are the Gifts I'd Like to Give to You

There must be quite a few things that a hot bath won't cure, but I don't know many of them.
- Sylvia Plath, The Bell Jar

I enjoy waking up and not having to go to work. So I do it three or four times a day.
- Gene Perret

In retirement, every day is Boss Day and every day is Employee Appreciation Day.
- Anonymous

Retirement Quotes #3

2009-11-18T04:19:00.000-08:00

Middle age is when work is a lot less fun and fun is a lot more work.
- Author Unknown

Life begins at retirement.
- Author Unknown

The challenge of retirement is how to spend time without spending money.
- Author Unknown

If people concentrated on the really important things in life, there'd be a shortage of fishing poles.
- Doug Larson

Retirement is wonderful. It's doing nothing without worrying about getting caught at it.
- Gene Perret

There are some who start their retirement long before they stop working.
- Robert Half

Rest is not idleness, and to lie sometimes on the grass under trees on a summer's day, listening to the murmur of the water, or watching the clouds float across the sky, is by no means a waste of time.
- J. Lubbock

When you retire, think and act as if you were still working; when you're still working, think and act a bit as if you were already retired.
- Author Unknown

The question isn't at what age I want to retire, it's at what income.
- George Foreman

Retirement means no pressure, no stress, no heartache... unless you play golf.
- Gene Perret

I'm not just retiring from the company, I'm also retiring from my stress, my commute, my alarm clock, and my iron.
- Hartman Jule

Golf is played by twenty million mature American men whose wives think they are out having fun.
- Jim Bishop

Don't play too much golf. Two rounds a day are plenty.
- Harry Vardon

The best time to start thinking about your retirement is before the boss does.
- Author Unknown

Don't simply retire from something; have something to retire to.
- Harry Emerson Fosdick

Retirement Waiver: Cartoon #3

2009-11-17T01:41:00.000-08:00

Before you open it, could you just sign the waiver accepting that the firm bears no responsibility for guaranteeing that your retirement is in fact 'Happy'.

Retirement Quotes #2

2009-11-16T04:13:00.000-08:00

I don't want to get to the end of my life and find I have just lived the length of it. I want to have lived the width of it as well.
- Diane Ackerman, Author

Without engaging interests and activities, it's easy to fill your day with little things that make you feel busy. It's even easier to turn on the TV.
- From a 70 something active retiree

The trouble with retirement is that you never get a day off.
- Abe Lemons

When a man retires and time is no longer a matter of urgent importance, his colleagues generally present him with a watch.
- R.C. Sherriff

When a man retires, his wife gets twice the husband but only half the income.
- Chi Chi Rodriguez

A retired husband is often a wife's full-time job.
- Ella Harris

Retired is being twice tired, I've thought
First tired of working,
Then tired of not.
- Richard Armour

I've been attending lots of seminars in my retirement. They're called naps.
- Merri Brownworth

Retirement: It's nice to get out of the rat race, but you have to learn to get along with less cheese.
- Gene Perret

I'm retired - goodbye tension, hello pension!
- Unknown

Retirement itself is the best gift. No gold watch could ever top it.
- Abigail Charleson

Retirement: World's longest coffee break.
- Unknown

Retirement has been a discovery of beauty for me. I never had the time before to notice the beauty of my grandkids, my wife, the tree outside my very own front door. And, the beauty of time itself.
- Hartman Jule

O, blest retirement! friend to life's decline -
How blest is he who crowns, in shades like these,
A youth of labor with an age of ease!
- Oliver Goldsmith

Retirement Collection: Cartoon #2

2009-11-15T01:39:00.000-08:00

There wasn't much of a collection I'm afraid. Most of the people who really liked you are dead. :(

Retirement has changed

2009-11-14T04:07:00.000-08:00

Lookup the word retire in the dictionary. Webster's offers this definition first: "To go away, retreat, or withdraw to a private sheltered or secluded place."

Now, look a bit further down and find the definition for retired: "That has given up one's work, business, career, etc. because of advanced age."

No offense intended to Mr Webster, but, to paraphrase an old advertising line, this isn't your father's retirement any more. Retirees are hanging up their working shoes with greater flexibility and choice than any prior generation in history. gone are the days of mandatory retirement at age 65. Today's retirees are just as likely to retire at age 50 as they are at 75.

Gone, too, is the stereotype of retirement - playing golf, gardening, or simply doing little if anything at all. Retirement today can mean any number of things - travel, volunteer work, going back to school, even beginning a second career.

But that breadth of opportunity brings with it greater responsibility - the responsibility that each of us has to consider our retirement options prudently, and, from there, to map out the best possible financial plan to meet those objectives.

What's Changed?

Perhaps an easier question to ask with regard to retirement is what has not changed. Very little remains the same when it comes to your post-working years. And the way things are trending, there's little likelihood that that sweep of change is going to diminish anytime soon.

Longevity
To grasp the significance of just how much retirement has changed, it's helpful to turn the clock back a bit - say, roughly 100 years. At the beginning of the twentieth century, retirement was almost unheard of. The reason: fairly few people lived - and worked long enough - to get to the point to retire. In 1910, life expectancy was a modest 50 years. Couple that with an average "retirement" age of 74, and it's easy to see that most people worked to the day they died.

How small was the retirement population back then? According to ElderWeb.com - a website that addresses long-term care topics - only 1 percent of the entire population could be considered "retired."

By 1940, although life expectancy had increased to 61, average retirement age was still 70. Translated: only 5 percent of the population was classified as retired. An increase, but not exactly a groudswell of retirees looking to fill free time with fulfilling pursuits.

By 1970, life expectancy was up to 67, although the average retirement age was 65 - on average, a scant two years to enjoy all you had worked for (don't spend it all in one place). Total retirement population: 10 percent.

By 2000, life expectancy finally broke through the 70-year mark (73), and the average retirement age continued to fall (62). Taken together, that meant that 15 percent of the American people were retirees.

In the year 2007, according to the Social Security Administration, there are nearly 36 million Americans aged 65 and over. A male child born today can expect to live until nearly 75; a newborn girl, almost to 80. In fact, those statistics are somewhat skewed when you look at an older age baseline. If a man makes it to age 50, from there he can expect to live until 77 or so; women can look forward to their 81st birthdays. According to some, the numbers are even greater - according to the Society of Actuaries, a 65-year-old couple in reasonable health has a statistical life expectancy of age 90.

Projections hold that those numbers are only going to continue to grow. By 2030, more Americans will be over the age of 65 than under 18. In fact, statistics suggest that many people today can expect to spend a third of their lifetime in retirement.

That places us in the heart of an intersting dynamic - one that's changing the very face of America. It's a force born of opposite directions - as the average American lives longer and longer, the average retirement age continues to fall.

Retirement Age Has Changed

The old rule of thumb had it that, like it or not, you retired at age 65 (actually, a bit older - in 1950, the average retirement age was 67). The reasons behind that were simple. Workers received full benefits from Social Security at age 65. On top of that, defined benefit plans offered at a broad range of workplaces also introduced full benefit eligibility at 65. In fact, some went even further by cutting off credit for service once an employee hit 65, effectively discouraging you from working any further to benefit your retirement.

Now, however, the average retirement age has fallen to 62. Many people retire in their 50s and even younger.

Why? A lot of it has to with changes in retirement-related legislation as well as shifts in the way retirees were paying for their retirement.

First off, Social Security introduced early retirement at age 62. Here, you were eligible for a portion of the full benefit you would receive at age 65.

A number of pieces of legislation also contributed to shifts in the age at which many people retired, including the following:

In 1978, Section 401(k) was added to the Internal Revenue Code, creating the now popular 401(k) retirement plan. In a nutshell, the plan allowed workers to defer income into retirement plans tax-free. More specifically, the plans do not specify a retirement age.
The introduction of the Individual Retirement Account (IRA) also opened up the possibility of earlier retirement for many people. IRAs allow withdrawals penalty-free beginning at age 59.5. IRAs were strengthened further with the debut of the Roth IRA in 1999.

Changes in corporate policy also sweetened the possibility of retiring sooner than age 65. From the mid-1970s into the 1980s, defined benefit plans consistently lowered the age at which a participant could receive benefits. More specifically - according to the Monthly Labor Review, 50 percent of defined benefit plans in 1974 offered unreduced benefits at age 62. By 1983, some 80 percent allowed employees to retire with full benefits at 62. Moreover, the number of plans allowing early retirement at age 55 rose from 76 percent to 85 percent during the same time period.

Simple fact: more people are retiring earlier than what was once considered "normal." Further, people are also retiring earlier than they expected to. According to the Cornell Retirement and Well Being Study - which took in more than 600 participants and tracked them over a period of several years - many people included in the first wave of interviews said they anticipated retiring at age 60 or 61. However, later in the study, participants had actually retired at an average age of 59.

Retirement Clock: Cartoon #1

2009-11-13T01:37:00.000-08:00

Have a look at the Retirement Clock where it's always 5 o'clock - whether it's day or night! Happy time retirees!!!

Retirement Quotes #1

2009-11-12T03:31:00.000-08:00

Retire when you're still young to handle it. I just retired, and packing up our house right now is exhausting me. I can only do it for certain amounts of time each day.
- Brenda Justice, Wichita, Kansas (Years retired - 1)

I had been thinking about retirement for some time, but really couldn't make up my mind to quit a job I truly loved. My relationships with my students meant so much to me that I was afraid I'd miss them terribly if I retired. I thought about it and prayed about it. Finally, God got tired of listening to me and gave me a shove. I lost my voice; for a teacher, that can be disastrous. I thought I had laryngitis, but found out it was something else and that it wasn't going to clear up on its own. Now, after three years of regular treatment, I have my voice back most of the time. God knew what I needed, even if I didn't.
- Susan, Taylor, Texas (Years retired - 3)

The right to time to retire is when you have more things to do outside of work than you have time to do while working.
- Yitz, Manchester, United Kingdom (Years retired - 8)

When you have enough money to live for the rest of your life without working, that's when you know it's time to retire. For some people, that might be when they're 30. Others might not hit this point until they're 93. For me, it happened in my 60s.
- Gary Gallagher, Williamson, West Virginia (Years retired - 1)

A person knows. When it became a seven-day-a-week job for me, not five, I knew I was ready. If you take pride in what you do, and if you think you can no longer give the job what you need, it's time.
- H. I. H., Durham, North Carolina (Years retired - 7)

I was pediatric nurse-practitioner for 25 years, and before I turned 60, I thought I would work until I was 90. I loved my job so much! After I turned 60, I found I was just getting so tired. Sixty really seems to be a turning point for people, a time when they really start thinking about retirement. So, I decided to retire and was able to phase myself out over a six-month period.
- Cynthia, St Paul, Minnesota (Years retired - 8)

By the age of 65, most of us have accomplished whatever work-related goals we are going to reach. If you haven't done it by then, chances are you aren't going to do it. Take the retirement, take the pension, take the Social Security, and sail off into the sunset.
- Sue Lasky, Poland, Ohio

I did not get much choice on my retirement. They came to me when I was 59.5 and told me that if I didn't retire, they were going to take away about $40,000 a year in pay. I had planned to stay until I was 62, but I couldn't afford not to go.
- Lawrence "Bimp" Layman, Harrisonburg, Virginia (Years retired - 1)

I knew I wanted to have a certain lifestyle when I retired, and I sat down with a financial planner who gave us a very good list to think about what we spend money on. It really helped. You just have to focus, think about what you are going to do, what kind of finances you need and do it.
- E. M., Edgewater, New Jersey (Years retired - 3)

To celebrate your retirement, just be with the people you love.
- Allan S. Ross, San Antonio, Texas (Years retired - 1)

The Hows & Whys of Retirement Planning

2009-11-10T00:11:00.000-08:00

I know that planning for retirement is important, but I'm always trying to catch up with my bills. When do I really have to start?
I don't even need to know how old you are to answer this question: The time is right now. Here's why: Time is the most important factor in the growth of your money. The more time your money is given to grow, the more money you will have when you retire, and the earliest money you contribute grows the most. Planning and investing for your future are signs of self-respect. Start now.

My goal is to save and invest $100 a month for my retirement, but first I want to make a couple of substantial purchaes. I'm only 25 years old. How much difference will a few years make?
A few years will make a big difference! Let's say you decide to start putting $100 a month in a good no-load mutual fund now, at age 25. Over the years, the fund does very well, averaging a 12 percent return per year. How much will you have when you turn 65? Almost $1,000,000. Now, let's examine what will happen if you make those large purchases instead. Say you wait 10 years to start investing $100 a month. You may think, no big deal, in 10 years I'll be only 35, and how much difference can $1,200 a year, or $12,000 over ten years, really make? It's going to cost you big time: about $700,000. That's right - if you wait until you are 35 to start investing that $100 a month, you will have only $300,000 at age 65. Wait until you are 45 to start, and you will have only $97,0000. If you think time doesn't matter, you are wrong!

Why does time have such a dramatic effect on the growth of money?
The answer involves one of the all-time winning financial concepts: compound returns, sometimes known as compound interest. Compounding creates advantages beyond the obvious benefits of saving and accumulating money. The longer you continue to save, of course, the more you will amass in your retirement account(s). But it's also true that the longer your money is invested, the money your original contributions can earn - all by themselves - for you.

Here's how it works: Let's say you invest $6,000 a year in your 401(k) account, which earns an average annual return of 8 percent. Let's say you do this for 20 years. The first year, your money will earn $480 in interest, or increased equity value. The next year, as you make your second $6,000 contribution, the account will automatically be returning 8 percent not only on your contributions but also on the first year's $480 gains. The gains on $12,480 (your two original $6000 contributions, plus the $480 return) is about $998. If you continue to contribute $6,000 every year, and the account continues to earn an 8 percent average annual return, within a decade the annual gain your account earns will be greater than your annual $6,000 contribution. Eventually, the annual gain will be many times greater than your annual contribution to your account.

Questions regarding Retirement Plans

2009-11-09T23:52:00.000-08:00

What are the benefits of qualified retirement plans?
The advantage to you as an employee is that your contributions in a qualified plan are made with pretax dollars from your paycheck. This means that you are not only investing your money for the future, but you are also using a percentage of money that otherwise would have gone to Uncle Sam. Better still, your pretax dollars grow tax-deferred - that is, you don't have to pay any income taxes on your contributions or your investment gains until funds are withdrawn from the plan at retirement. This is also true of certain other retirement-savings vehicles, such as a traditional IRA.

Another advantage is that many employers match part or all of employee contributions. Qualified plans also qualify for special taxation rules such as ten-year averaging and capital-gains tax.

But the most comforting feature of a qualified plan is that it is protected against claims by your employer's creditors. Your money is held in trust for you and should be relatively safe.

Is a qualified retirement plan tied to my employer? What if I change jobs?
Under most circumstances, you can take a qualified retirement plan with you, so to speak, when you change employers. By tranferring your retirement account to another retirement vehicle, even one held at a private bank or brokerage company (this is known as an IRA rollover), you can avoid tax consequences. In some cases you may be able to transfer your old retirement plan directly to your new employer's plan.

If my company has a qualified retirement plan, who can participate?
A qualified plan cannot discriminage; all eligible employees can participage. (Some companis may have a waiting period before new employees can participate in their retirement plan.)

Is there such a thing as a nonqualified plan? What is it?
A nonqualified plan does not meet certain IRS or Employee Retirement Income Security Act (ERISA) requirements, so that, among other things, it can be used to disproportionately reward employees at higher income levels in a company. (This is something that, by law, qualified plans can't do.) Employees who participate in nonqualified plans have a lot more flexibility and freedom in organizing their investments while still participating in tax-deferred growth. There are few vesting requiremetns, if any, in a nonqualified plan - in other words, contributions basically belong to the employee as soon as they are made. But there are restrictions. Participants in a nonqualified plan may not be able to transfer their money into another retirement account. If they leave the company where their plan is managed, or if they retire, they may have to withdraw all the money in the plan as a lumpsum payment and pay ordinary income tax on it. Also, the assets of the employees are not held in trust, so they are not protected against the claims of the employer's creditors.

Are most retirement plans governed by the same rules in regard to how long money has to stay in the plan and what happens when it is withdrawn?
Yes. Almost all retirement plans, except Roth IRAs and 457 plans, are governed by very similar withdrawal and taxation rules. In most cases you cannot take money out of your retirement plans prior to the age of 59.5. If you do make a withdrawal before you turn 59.5, the money you take will be taxed as ordinary income and you will have to pay a 10 percent early-withdrawal penalty to the IRS, as well as a possible state penalty and taxes on that level. You also must start taking money out by April 1 after the year you turn 70.5. At this age, there is a minimum you must withdraw from your retirement account, a figure based on a formula devised by the plan. If you fail to withdraw the minimum, the IRS will assess a 50 percent penalty on that amount. Of course, after the age of 59.5, you can take out any amount of money you want - there is no maximum. Just remember that whatever you take out will be taxed as ordinary income.

How many different kinds of retirement plans are available and what is a qualified retirement plan?

2009-11-08T23:32:00.000-08:00

The answer depends on whether you are an employee or are self-employed. Below is a list of the most popular retirement plans. Most are for use by employees of companies; the plans with an asterisk are typically limited to those with self-employment income. Entries marked with a Q are qualified plans, which means the employers can receive a tax break for their contributions to these plans.

Defined Benefit Plan - Q
Target Benefit Plan - Q
Defined Contribution Plan - Q
Profit Sharing Plan - Q
Money Purchase Pension Plan - Q
Stock Bonus Plan - Q
457 Plan
401(k) - Q
Roth 401(k) - Q
403(b)
TSA
Traditional IRA
Roth IRA
Converted Roth IRA
Rollover IRA
Simple IRA
SEP-IRA
Keogh Plan - Q

A qualified retirement plan is what large companies usually offer to their employees. As defined by section 401 of the US Tax Code, qualified plans were created as a tax incentive for employers to contribute to employee retirement plans. Every year, your employer is allowed to deduct from company taxes certain contributions it makes to the plan on your behalf.

You really can do your own financial planning

2009-11-06T02:47:00.000-08:00

All of this change and all of the responsiblity individuals must take for their own retirement planning may sound frightening. Fortunately, though, we live in a time when anyone really can be a saver, an investor, and a planner. Think about the changes in America's financial institutions in the last 25 years. As late as the 1970s:

Bank deposit interest rates were regulated
Brokerage fees were regulated
Money market funds did not exist
Mutual funds were "iffy" propositions, and almost all were sold only through brokers
Computers meant company mainframes

Today, banks compete for deposits by offering competitive interest rates on savings, checking, and money market accounts as well as on certificates of deposit (CDs). Mutual fund companies sell directly to the public, and an increasing number of mutual funds are sold without a sales fee, also known as no load. There are more mutual funds in the United States today than there are individual publicly traded stocks on the New York Stock Exchange.

Anyone can track and maintain his or her own portfolio with a personal computer and sophisticated yet simple-to-use software. There are dozens of personal finance software packages available, many of which allow you to do this through a linkage with an on-line information service.

An ever-growing multitude of investment vehicles exists. Individuals can diversify and invest globally more easily than ever before. Doing so can quickly lead to confusion. But where there is ambiguity there is also opportunity for those who can cut through the maze.

The way to turn confusion into opportunity is to understand the process and maybe even learn to enjoy the game if investing.

A wake up call to retirement

2009-11-05T03:57:00.001-08:00

Retirement. what a fantastic thing! Imagine never having to work again! Or working only by choice!

If you are nearing your 65th birthday now, you will soon join the fastest growing segment of the American population. In 1900 there were 123,000 Americans age 65 or older. Today there are 34.7 million such Americans. It is estimated that in 2030, there will be 69.4 million Americans over age 65.

The notion of age 65 having some sort of magic is not an American idea. Otto von Bismarck, the 19th century German chancellor, actually created the first state-funded retirement pension for Germans and set the age at which payments could begin. Half a century later Americans first began to collect Social Security retirement benefits, in 1937.

When Social Security began paying retirement benefits, an American man who reached adulthood had a life expectancy of about 63 years. If a man lived until 65 and began collecting Social Security benefits, he could expect to live another two to three years. When most married men died, they left widows who had not worked outside the home for many years, if at all. Social Security set a policy of allowing surviving spouses with dependent children under 16 and spouses age 60 and over to collect benefits based on what the working spouse had contributed to the Social Security system.

The average life expectancy of Americans increased 50% in the 20th century. A baby born in 2000 has a life expectancy of over 72 years, while a baby girl born has a life expectancy of over 79 years.

What's interesting is that the older you are, the older you are expected to get. An American turning 65 today and beginning to collect Social Security benefits can expect to receive those benefits for more than 18 years. You might think of retirement as the third full chapter of your life! What you do today in terms of planning and saving will have a large impact on whether you spend that time in relative financial comfort or worrying about your finances.

Perhaps the most important message is that you are retiring to something, and not retiring from a job. The more you prepare for the potential of those years, the more fulfilling they will be.

It is crucial for you to understand that your retirement will not be like anyone else's. The choices you make about how you will live in retirement, where you will live in retirement, and how you will save and invest for that retirement are among the most important decisions you can make.