The Retirement Corporation of America

Summary

MOST PEOPLE ARE surprised at how stressful planning for retirement can be. It does represent a major turning point in life—so stress shouldn't be such a surprise. But you can reduce the stress by doing the right sort of planning at the right stage in your life.

Start making your plans for retirement as soon as you can. Then keep refining and adjusting them to changing circumstances—and changed plans—until you are ready to put your retirement plan into use.

Don't make all your retirement plans a matter of dollars and cents. Unless you are able to do things in retirement that you couldn't do while you were working—then your senior years could prove to be very empty years.

Don't assume retirement means picking up roots and moving somewhere else. You may decide you'll be happiest in retirement, living just where you live now.

The idea that retirement means years of idleness—playing golf and fishing—never was valid. More and more people are opting for part-time work, even a whole new career, when they retire. But new careers don't get built overnight. Start making plans many years before you leave your old job.

One of the hardest questions to answer—but one of the most crucial—is how much you'll need to live on in retirement. You calculate that by taking your budget today, and refining and fine-tuning it, again and again, until you do retire.

Once you have an idea of how much you'll need to retire, you next calculate how much you'll have in retirement. Then you'll know if you face a retirement gap—and how big of a gap. The sooner you realize you face a retirement shortfall, the sooner you can take steps to begin closing it.

Investing becomes more challenging as you near retirement. There is less time to make up lost wealth—and more reasons to take less risks with your money. The closer to retirement you get, the more conservative your investing stance should be.

Social Security may not pay you all you hoped it would in retirement. But the system really isn't about to go bankrupt. Therefore, you'll want to learn all you can about applying for Social Security benefits and Medicare. You'll also want to know about overcoming the limitations of Medicare with a Medigap policy that closes the gaps.

The rules about taking money out of your pension plan are complicated. And you'll have to make some tough choices before you decide. This lesson will help you decide which method of withdrawing pension money makes the most sense for you.



You wait to start withdrawing money from your retirement savings plans until fairly late in life—after you have retired and need the money to fund your retirement. But what you are able to do late in life will be based heavily on plans made while you were still young. As with other aspects of financial planning, start thinking about how to take money out of retirement plans fairly early in life.

There are two major issues to be considered when it comes to formulating a plan for withdrawing money from retirement plans: the earliest you can begin withdrawing money, and when you are legally required to begin withdrawing money. You deal with those issues by making plans—on your own or with a financial planner—that will time with-drawals so the money is there just when you need it.

In most cases, you face stiff penalties for withdrawing money from retirement plans before you reach age 59 1/2. There is a way around that rule, however, if you elect to receive money from these plans in what the IRS calls "substantially equal periodic payments."

You can increase your Social Security benefit if you hold off collecting benefits past your normal retirement age. Still, most experts suggest taking the benefit earlier than that—at your normal retirement age or even at the early retirement age of 62.

You could take money out of a 401(k) plan as cash. However, it takes more discipline than most of us possess not to treat that money as a windfall—to be spent on the good things in life. Better, by far, is to roll the money into an IRA, so it can continue to compound, tax-deferred.

One retirement savings plan stands out from all the rest—the Roth IRA. It doesn't provide an upfront tax deduction as other retirement plans do, but interest is compounded as long as the money stays in the Roth. Once the account is five years old, you can withdraw money without owing any taxes. No other retirement savings plan offers anything comparable to those tax-free withdrawals from a Roth.

You can't withdraw money from a 401(k) before age 59 1/2 without paying a penalty. But you can borrow from most plans in case of a financial emergency, or if you need money to buy a house. However, while you can borrow from a 401(k), there are many reasons why you should not.

The days have passed when the standard pension was a DB plan. Still, many businesses offer them. If you're in a DB plan, you may be offered a choice of how you want to take your benefits from the plan.

Successful Investing & Money Management stresses the value of life-stage financial planning—starting your planning when you are very young and modifying it as you get older. This lesson shows you how to apply life-stage planning to build your retirement nest egg—and then how to apply a planning strategy to the process of withdrawing money from your savings accounts.

When timing withdrawals from your retirement savings plans, you should plan to wait as long as possible to withdraw your money. Then you want to withdraw as little as possible, while still being able to live comfortably, once you do start.

Which retirement savings accounts you tap into first depends on a number of factors. One of the most important is your tax situation. The ideal situation is to begin tapping into your retirement nest egg in the order of the least tax liabilities they will impose on you. You save the heaviest tax jolt for last, on the theory that your tax bracket will come down as you grow older.