Retirement doesn't necessarily mean sixty-five anymore. Retirement now can mean fifty to fifty-five years of age, when you could be offered early retirement!
If you are fifty-five years of age or older in the year of your retirement, you can withdraw any or all of the money, whenever you wish, from your qualified retirement plan without any penalties whatsoever. This rule of "fifty-five and over" pertains only to money in employee qualified plans, not for any other retirement account, such as an IRA, an IRA rollover, or SEP/IRA.
If you are 55 or older and transfer your funds from your qualified plan into an IRA rollover, you will also transfer away the right to access these funds at convenience without penalty until you turn 59 1/2 unless you take substantially equal periodic payments.
If you are not or will not be fifty-five in the year of your retirement, the best way to avoid penalties, if you need to access those funds, is by rolling over your funds into an IRA rollover and taking substantially equal periodic payments.
If you are presented with an early retirement offer, the following guidelines will help you in deciding if you can retire.
Tip: If you are taking early retirement because your spouse or partner's earnings cover your financial needs and you are dependent on those earnings, you should consider purchasing a "level term" life insurance policy on him or her to protect you in case anything happens to your spouse or partner if he or she is not already adequately insured. (You will need the policy only for the number of years your spouse or partner plans to work. If he or she will retire in ten years, take out a ten-year policy.)
Tip: Most early retirement health benefit offers will not include dental or optical care. If your company now covers these two and if early retirement is in the air, get all your dental and optical work completed beforehand.
Tip: At age 70 1/2 you are required to start withdrawing funds if you have not already done so.
Tip: If you and your spouse have set up a living trust (hold your assets in trust), make sure the primary beneficiary named on all your retirement accounts is the individual name of your spouse and not the trust. If you name the trust as the primary beneficiary, it will be subjected to the same rules as a nonspouse and the account will have to be wiped clean within five years. The trust should be named the contingent beneficiary only.
(1) Any financial adviser who calls you cold-whom you don't know and have never heard of-should be sent packing. Hang up. A successful adviser doesn't have to look for clients. Clients seek her or him out.
(2) If an adviser has time to come to your home, something is probably radically wrong. When I was seeing clients—long before I wrote my first book—I didn't have time to breathe, let alone get in a car and drive for half an hour across town to a client's home and then drive back again.
(3) You should make it a point to visit a potential adviser's office, in any case. You'll want to pay careful attention to how he or she keeps his or her professional space. Is it neat? Are files in order? Is it busy?
(4) If you are married or have a life partner, a potential adviser should have found this fact out by asking and should see you only if you agree to bring your partner along or else have a very good reason why you prefer not to.
(5) A good financial adviser will ask you all—not some, but all—of the following questions: How is your health? (This is No. 1, in my opinion, since if you're not healthy you'll need first and foremost to plan for your medical care and possibly your income if and when you cannot work.) Are you in debt? (This is No. 2.) Are you responsible for aging parents? Do you have a will or trust? Will you inherit money someday? Do you need to make a major purchase like a new car or a new roof for your home? Do you have a retirement plan? Are you funding it to the maximum allowed by law? Do you have adequate insurance? Are you saving for your children's education? Only after an adviser fully understands your financial situation should he or she ask you how much money you have to invest.
(6) An adviser should be a Certified Financial Planner, or CFP® Professional, just as I am. That means that he or she cares enough about his or her clients to have gone through a two-year certification process, with continuing education requirements mandating that he or she stay up-to-date on the kinds of information that you need.
(7) You should be told up front how, and how much, a potential adviser will be paid. You shouldn't have to ask. The correct method of payment is by fee only. Any adviser who wants to be paid through commissions charged on the investments he or she makes for you has an incentive to move you in and out of stocks and other investments, perhaps in direct opposition to what's best for you.
(8) An adviser should never ask you to write a check to him or her. You should write checks only to a brokerage, an insurance company, or another financial services firm.
(9) If you already have an adviser, that adviser should be calling you in down markets as well as in up markets. Has your adviser called you in the past 12 months?
Investors Business Daily
Wall Street Journal
Bob Brinker - Money Talk
American Association of Retired Persons (AARP)
601 E Street, NW
Washington, DC 20049
National Academy of Elder Care Law Attorneys
American Bar Association Commission on Legal Problems of the Elderly
740 15th Street, NW
Washington, DC 20005-1022
The American Council of the Blind
1115 15th Street NW; Suite 1004
Washington, DC 20005
(202) 467-5081 or (800) 424-8666
American Foundation for the Blind
11 Penn Plaza, Suite 300
New York, NY 10001
(212) 502-7600 or (800) 232-5463
Braille Institute of America, Inc.
741 North Vermont Avenue
Los Angeles, CA 90029
The Council for Disability Rights
205 West Randolph, Suite 1650
Chicago, IL 60606
National Council on Aging
409 3rd Street, SW; Suite 200
Washington, DC 20024
New Eyes for the Needy
P.O. Box 332
549 Milburn Avenue
Short Hills, NJ 07078
Family Caregiver Alliance
690 Market Street, Suite 600
San Francisco, CA 94104
Serving the families of people with Alzheimer's disease and other neurological conditions.
National Legal Aid and Defender Association
1625 K Street NW; Suite 800
Washington, DC 20006
National Parent to Parent Support and Information System, Inc.
P.O. Box 907
Blue Ridge, GA 30513
Devoted to linking parents of children with special health-care needs and rare disorders.
Administration on Aging
330 Independence Avenue, SW
Washington, DC 20201
National Aging Information Center
330 Independence Avenue, SW, Room 4656
Washington, DC 20201
National Institute on Aging
Building 31, RM SC27
31 Center Dive, MSC 2292
Bethesda, MD 20892
Social Security Administration
640 I Security Boulevard
Baltimore, MD 21235
Equal Employment Opportunity Commission
1801 L Street NW
Washington, DC 20507
(800) 669-6820 (NY)
Department of Veterans Affairs
245 West Houston Street
New York, NY 10014
Internal Revenue Service
For "The Older Americans' Tax Guide," also known as Publication 544, and/or IRS Publication 915, which provides you with a number of worksheets to use to calculate the exact taxation of your benefits.
Commission on Aging
770 Washington Avenue, Suite 470
Montgomery, AL 36130
Fax: (334) 242-5594
Commission on Aging
Department of Administration
Juneau, AK 99811-0209
Aging and Community Services Division
Economic Security Department
1789 West Jefferson Street, #950 A
Phoenix, AZ 85005
Aging and Adult Services
P.O. Box 1437, Slot 1412
Little Rock, AR 72201
Department of Aging
1600 K Street, 4th floor
Sacramento, CA 95814
Aging and Adult Services Division
110 16th Street, Suite 200
Denver, CO 80202
Elderly Services Division
25 Sigourney Street, 10th floor
Hartford, CT 06106-5033
1901 North Dupont Highway
New Castle, DE 19720
DISTRICT OF COLUMBIA
441 4th Street, NW, Suite 900
Washington, DC 20001
Department of Elder Affairs
Building B, Suite 152
4040 Esplanade Way
Tallahassee, FL 32399-7000
Aging Services Office
2 Peachtree Street, NE, 18th floor
Atlanta, GA 30303
Division of Senior Citizens
Dept. of Public Health and Social Services
P.O. Box 2816
Agana, Guam 96932
(011) (671) 475-0263
Hawaii Executive Office on Aging
250 S. Hotel Street #107
Honolulu, HI 96813
Idaho Commission on Aging
3380 Americana Terrace, #120
Boise, ID 83706
Department on Aging
421 East Capital Avenue, Suite l00
Springfield, IL 62701-1789
Disability, Aging, and Rehabilitative Services Division
Family and Social Services
402 West Washington Street, Room W 454
P.O. Box 7083
Indianapolis, IN 46204
Elder Affairs Department
Clemens Building, 3rd floor
200 10th Street
Des Moines, lA 50309-3609
Department on Aging
New England Building
503 South Kansas Avenue
Topeka, KS 66603-3404
Aging Services Division
Social Services Department
275 East Main Street, 6 West
Frankfurt, KY 40621
Elderly Affairs Office
P.O. Box 80374
412 North 4th Street, 3F
Baton Rouge, LA 70802
Bureau of Elder and Adult Services
35 Anthony Avenue
State House, Station 11
Augusta, ME 04333
(800) 262-2232 and (207) 624-5335
State Office Building, Room 1007
301 West Preston Street
Baltimore, MD 21201-2374
Executive Office of Elder Affairs
1 Ashburton Place, 5th floor
Boston, MA 02108
Aging Office P.O. Box 30026
Lansing, MI 48909-8176
Minnesota Board on Aging
444 Lafayette Road
St. Paul, MN 55155
Aging and Adult Services Division
750 State Street
Jackson, MS 39202
Social Services Department
P.O. Box 1337
615 Howerton Court
Jefferson City, MO 65109
Senior and Long-term Care Division
Department of Public Health and Human Services
P.O. Box 4210
111 Sanders, Room 211
Helena, MT 59604
Department of Health and Human Services
Division on Aging
P.O. Box 95044
301 Centennial Mall South
Lincoln, NE 68509
Aging Services Division
Human Resources Department
State Mail Room Complex
340 N. 11th Street, #203
Las Vegas, NV 89101
Elderly and Adult Services Division
115 Pleasant Street Annex
Concord, NH 03301-3843
Department of Health and Senior Services
Division of Senior Affairs
P.O. Box 807
Trenton, NJ 08625-0807
State Agency on Aging
La Villa Rivera Building, 4th floor
224 East Palace Avenue
Santa Fe, NM 87501
Empire State Plaza, Building 2
Albany, NY 12223-1251
Resources for Seniors
1001 Navaho Drive
Raleigh, NC 27609
600 South 2nd Street, #1C
Bismarck, ND 58540
50 West Broad Street, 9th floor
Columbus, OH 43215-5928
P.O. Box 25352
312 NE 28th Street
Oklahoma City, OK 73125
(405) 521-2327 or (405) 521-2281
Senior and Disabled Services Division
500 Summer Street, NE
Salem, OR 97310-1015
Department of Aging
555 Walnut Street, 5th floor
Harrisburg, PA 17101-1919
Office of Elderly Services
50063 Old San Juan Station
San Juan, Puerto Rico 00902
Elderly Affairs Department
160 Pine Street
Providence, RI 02903
Office on Aging
P.O. Box 8206
Columbia, SC 29211-8206
Adult Services and Aging Office
700 Governors Drive
Pierre, SD 57501-2291
500 Deaderic Street, 9th floor
Nashville, TN 37243-0860
4900 North Lamar, 4th floor
Austin, TX 78751
Aging and Adult Services
120 North 200 West
P.O. Box 45500
Salt Lake City, UT 84145-0500
Aging and Disability Department
103 South Main Street
Waterbury, VT 05676
1600 Forest Avenue, #102
Richmond, VA 23219-2327
Adult and Aging Services
P.O. Box 45050
Olympia, WA 98504-5050
West Virginia Bureau of Senior Services
Holly Grove Building
1900 Kanawha Boulevard
Charleston, WV 25305-0160
Aging and Long Term Care Bureau
P.O. Box 7851
Madison, WI 53707
117 Hathaway Building, Room 139
Cheyenne, WY 82002-0710
Social Security Administration
To get a Social Security estimate.
U.S. Office of Personnel Management's Retirement Information Office
For information about Social Security application forms and/or benefits packages
The U.S. Office of Personnel Management Employee Services and Records Center
Boyers, PA 16017
If you are calling for answers to questions that do not directly involve your or your spouse's employment history
Call your local Social Security office and ask for:
How Your Retirement Benefit Is Figured (Publication 05- 10070)
Understanding Social Security (Publication 05-10024)
The Appeals Process (Publication 05-10141)
Retirement Benefits (Publication 05-10035)
When You Get Social Security Resources or Survivor Benefits: What You Need to Know (Publication 05-10077)
You can order publications from the American Association of Retired Persons by contacting:
601 E Street, NW
Washington, DC 20049
The Pension Benefit Guaranty Corporation (PBGC)
A federal agency that protects employer-sponsored defined-benefit plans. The PBGC invites people to call their customer service representatives for assistance.
Pension Rights Center
I've heard stories about companies mismanaging pension plans and their employees being left with nothing, and that makes me nervous. How can I keep track of what my company does with my retirement plan?
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry. ERISA requires retirement plan administrators-the people who run the plans-to provide you with written information explaining the most important facts about your pension plan. The plan administrator is required to keep you regularly informed. This includes a summary plan description (SPD), which you should get when you begin participating in the plan. The SPD is a comprehensive document that tells you exactly what the plan provides and how it operates. The SPD should show when you began to participate in the plan, how your service and benefits are calculated, when your benefit becomes vested, when and how you will receive payments, and how to file for your benefits when you need to. If there are any changes to the SPD, your plan administrator is required to give you a revised summary plan description or a separate document detailing the modifications. Both the original SPD and any changes to it must be given to you free, and you should read everything carefully.
In addition to the SPD, the plan administrator must also give you a copy of the plan's summary annual report, a summary of the annual financial report that most pension plans must file with the Department of Labor. Finally, you should also receive, free of charge every year, an individual benefit statement that describes your personal total accrued and vested benefits.
If this does not answer the questions you have about your plan, there is more information available, but you must request it from your plan administrator.
I haven't been able to get the summary plan description, the summary annual report, or the annual report from my plan administrator. How do I figure out what is going on?
If no one else you know in your plan is receiving this information either, there is potentially a serious case of mismanagement of your plan. Because the annual report has to be filed with the government, you may be able to obtain a copy of it by writing to the
Department of Labor, PWBA, Public Disclosure Room
Room N-5638, 200 Constitution Avenue, NW
Washington, DC 20210
When you make this request, try to provide as much information as possible about the plan. The Department of Labor will charge you a modest fee to cover copying costs.
Meanwhile, make sure that you have made your requests to your plan administrator in writing and have kept copies of the requests. If a plan administrator refuses to comply with your request for documents, and the reasons for the delay were within his or her control, a court could impose penalties on the administrator of up to $100 per day.
Is it possible for my retirement plan to be terminated? What would that mean for my retirement savings?
Pension plans are supposed to continue indefinitely, but employers are allowed to terminate plans. You do have some protection if your plan is canceled. If your plan is qualified, your accrued benefit must become 100 percent vested when the plan terminates, to the extent that it is funded-meaning what has so far been contributed by you and your employer. This is also true if your employer partially terminates a qualified plan, say if one division of a company is closed and a substantial number of plan participants are affected. All affected employees' plans become 100 percent vested, to the extent they have been funded, effective as soon as the plan terminates.
When my sister's pension plan was terminated, the company she works for didn't have enough money to pay out all the benefits. How can I make sure this doesn't happen to me?
If you have a defined-benefit plan, ask your plan administrator if it is insured by the Pension Benefit Guaranty Corporation (PBGC). If it is, the PBGC guarantees that you will receive your vested pension benefits, up to certain limits. If additional benefits that exceed PBGC's limits or that were not guaranteed are due to you, whether you receive them and how much you receive will depend on the plan's funding and how much the PBGC can recover from your employer. If you find yourself in this messy situation, contact the
Pension Benefit Guaranty Corporation
Administrative Review and Technical Assistance Department
1200 K Street, NW
Washington, DC 20005
(202) 326-4000, for more information.
Rumors of a possible merger are flying around my office. Should I be worried about my pension plan?
If your employer merges with another company, the two companies may merge retirement plans as well. But if your company's plan is the one that gets terminated, you would most likely receive benefits under the new plan that are at least equal to the benefits you were entitled to before the plans merged. By all means, ask your plan administrator what's going on.
What if I lose my job but I am vested in my pension? Will I keep receiving information about my pension?
If you leave an employer with whom you have a vested pension benefit that you won't be eligible to receive until later in life, your plan administrator must report that information to you and to the IRS, which, in turn, will inform the Social Security Administration. You can check with the Social Security Administration to ensure that you were reported as having a deferred vested benefit . (Call the Social Security Administration toll-free at 800-772-1213.) Even if you don't request this information, Social Security will automatically fill you in when you retire and apply for Social Security benefits. Still, I think it is a good idea to double-check after you leave your job . Stay in touch with the plan administrator, keeping him or her informed of any name or address changes to ensure that you will receive your full pension benefit.
I have read the literature about my pension and benefit accrual, but I don't really understand how it works. Can you explain it?
When you participate in a pension plan, you earn and accumulate - or accrue - pension benefits. Your accrued benefit is the amount that has been accumulated or allocated in your name under the plan as of a particular date. Plans can use any definition of service for the purpose of calculating your benefit accrual, as long as they use basically the same definition for all participants. Usually, a company calculates your years of service for purposes of benefit accrual from the date you became a plan participant, not necessarily from your date of hire.
If I work part-time, how are my years of service calculated?
Employees who work at least 1,000 hours per year but do not work full-time must be credited with a pro rata portion of the benefit that they would accrue if they were employed full-time. In other words, if your plan requires that employees work at least 2,000 hours of service per year for full benefit accrual but you work only 1,000 hours per year, you will be credited with 50 percent of the full benefit. Check your summary plan description to see exactly how your plan calculates service credit.
Can my plan reduce my future benefits?
Your employer may amend your plan to reduce the rate at which benefits accrue in the future. For example, a plan that pays $10 in monthly benefits at age 65 for each year of service up through 1999 can be amended to say that benefits for years of service beginning in 2001 will be credited at a rate of $8 each month. If you are participating in a defined benefit plan, you must receive written notice of any significant reduction in the rate of future benefit accruals after the plan amendment is adopted and at least 15 days before the effective date of the plan amendment. That notice is supposed to describe the plan amendment and the date it becomes effective.
I was employed by one company for 15 years before leaving for a job that I thought would be terrific but which turned out to be a disaster. I'm pretty sure I'll be able to get my old job back, but what will happen to my service credit?
If a break in your employment lasts long enough, it can have serious consequences for your pension if you were not fully vested when you left. However, your accrued benefits are normally protected if you have a short break, usually less than five years. If you are actually planning a leave of absence, you need to examine the rules of your plan carefully so that you do not lose pension benefits unnecessarily.
When can I count on beginning to receive benefits from my qualified retirement plan?
According to the Employee Retirement Income Security Act, you must begin to receive plan payments from a qualified plan not later than the 60th day after the close of the plan year in which the last of the following events occurs:
"Normal retirement age" is defined as the earlier of:
Normal retirement age is also the point at which a participant must become 100 percent vested in the plan. So for most people, being 100 percent vested in a qualified retirement plan is the factor that determines normal retirement age. These rules apply for both defined contribution plans and defined benefits.
Does the type of plan I have affect when or how I can start receiving benefits if I want to access them before I reach normal retirement age?
Yes. Again, check your summary plan description for the specific details of your plan, but generally, there are several conditions under which your plan might allow you to begin receiving payments "early." A defined benefit plan could permit earlier payments by, say, providing for early retirement benefits, which might have additional eligibility requirements. A defined benefit plan might also allow benefits to be paid out when you terminate your employment, suffer a disability, or die. Often, 401(k) plans allow you to withdraw some or all of your vested accrued benefit when you leave your job, reach age 59H, become disabled, retire, die, or suffer some other hardship that may be defined in the summary plan description. Profit-sharing or stock bonus plans may allow you to receive your vested accrued benefit after you leave your job, reach a specific age, become disabled, die, or after a specific number of years have elapsed.
Can my plan force me to start receiving benefits?
If the total value of your vested accrued benefit is greater than a specified minimum, the plan cannot force you to start receiving benefits before you reach the normal retirement age. If your vested accrued benefit is below that minimum, though, you might be required you to take this money as soon as possible, often when you leave your job. If your plan is qualified you must generally begin taking benefit payments by April 1 of the calendar year following the calendar year in which you reach age 70H, whether you want to or not.
Do I have any choice about how my benefits are paid out?
Your plan will establish the forms in which you can receive your benefits, but it usually offers a variety of options. If you have a defined benefit plan and you are not married, by law, your benefit must be made available at least in the form of a life annuity - equal monthly payments for the rest of your life. If you are married, your benefit choices must include monthly income after your death to your spouse. Some defined-benefit plans may also allow you to take all your benefits in a single payment. Most likely will have the right to choose any of these options.
I think I should have begun receiving my benefits already, but I'm not getting them. What can I do?
First of all, examine your summary plan description. All plans are required by law to provide participants with written instructions describing how to make benefit claims and how to appeal when claims are denied. If you don't understand the plan description or it doesn't include a procedure, write a letter making your claim directly to the plan administrator. If you make a claim for your benefit and it is rejected, your plan is required to notify you in writing of the rejection, along with specific reasons for the denial. The denial letter is also required by law to explain how you can appeal the decision.
My plan administrator hasn't officially rejected my claim for benefits, but he keeps saying that my claim is still under review. How long can this go on?
Not for long, at least not legally. If your plan has a legitimate reason for needing additional time to examine your claim, they have to send you written notification within 90 days explaining why additional review time is necessary and give you a date by which a decision is expected. If the plan is trying to deny or is delaying your claim because it needs information, they are required to inform you, in writing, what information is needed. If you don't hear anything from the plan within 90 days of making your claim, legally, you can appeal as though your claim had been officially denied.
Once my claim has been denied, how long do I have to appeal?
Again, check your summary plan description for details. Your plan is required to give you at least 60 days to appeal a denial, and the administrator is usually required to make a decision within 60 days of the appeal. If you find yourself in this situation, you should be communicating with the plan in writing and keeping copies of all correspondence. Just as in the initial review stage, the plan has to give you its decision, along with reasons for it, in writing.
What if the plan denies my claim again, but I know I'm entitled to my benefits?
At this point, you need to consult a lawyer; you may have to file a lawsuit. It is crucial now that you complete all necessary stages of administrative appeal available before you turn to the courts. This is another reason for you to make sure you understand the rules in your specific plan and to keep careful records of all your communications regarding your benefit.
I worked for my company for many years without any problems. Then, out of the blue, I was fired. I suspect it was done so my employer could avoid paying my pension. Can they really do this?
No. It's illegal. Employers are absolutely not allowed to discharge, fine, suspend, expel, discipline, or discriminate against you or any of your beneficiaries for the purpose of interfering with any benefits that you are entitled to under their retirement plan, and they can be fined for doing so. If you think your employer is interfering with your benefits, consult a lawyer who has expertise in labor law and the Employee Retirement Income Security Act.
Pension Benefit Guarantee Corp.
2020 K Street, NW
Washington, DC 20006
Request a copy of "Your Pension: Things You Should Know About Your Pension Plan"
Department of Labor's Pension and Welfare Benefits Administration
U.S. Department of Labor
Pension and Welfare Benefits Administration
Washington, DC 20210
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in i private industry, including 401 (k)s. The U .S. Department of Labor is the agency that oversees these standards. Contact them for information about pensions. You can request a copy of the Department of Labor's Protect Your Pension: A Quick Reference Guide by writing to the address above:
Dept of Labor, PWBA
Public Disclosure Room
200 Constitution Ave. NW
Washington, D.C. 20210
If you have not received the summary plan description, the summary annual report, or the annual report from my plan administrator you cam obtain a copy by writing to the address above.
If you live in Tennessee, North Carolina, South Carolina, Georgia, Alabama, Puerto Rico, Mississippi, or Florida, contact:
PWBA Atlanta Regional Office
61 Forsyth Street
Atlanta, GA 30303
PWBA Fort Lauderdale
8040 Peters Road
Building H, Suite 104
Plantation, FL 33324
If you live in Rhode Island, Vermont, Maine, New Hampshire, most of Connecticut, Massachusetts, and central or western New York, contact:
PWBA Boston Regional Office
J.F.K. Building, Room 575
Boston, MA 02203
If you live in northern Illinois, northern Indiana, or Wisconsin, contact:
PWBA Chicago Regional Office
200 West Adams Street
Chicago, IL 60606
If you live in Michigan, Kentucky, Ohio, or southern Indiana, contact:
PWBA Cincinnati Regional Office
Suite 210, 1885 Dixie Highway
Ft. Wright, KY 41011
PWBA Detroit District Office
Suite 1310, 211 Fort Street
Detroit, MI 48226-3211
If you live in Arkansas, Louisiana, New Mexico, Oklahoma, or Texas, contact:
PWBA Dallas Regional Office
Room 707,525 Griffin Street
Dallas, TX 75202-5025
If you live in Colorado, southern Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, or Wyoming, contact:
PWBA Kansas City Regional Office
1100 Main Street
Kansas City, MO 64105-2112
PWBA St. Louis District Office
Room 338, 815 Olive Street
St. Louis, MO 63101-1559
If you live in American Samoa, Arizona, Guam, Hawaii, or southern California, contact:
PWBA Los Angeles Regional Office
Suite 514, 790 East Colorado Boulevard
Pasadena, CA 91101
If you live in eastern New York, southern Connecticut, or northern New Jersey, contact:
PWBA New York Regional Office
U.S. Customs House
Room 625, 6 World Trade Center
New York, NY 10019
If you live in Delaware, Washington, DC, Maryland, southern New Jersey, Virginia, West Virginia, or Pennsylvania, contact:
PWBA Philadelphia Regional Office
Room M300, Gateway Bldg.
3535 Market Street
Philadelphia, PA 19104
PWBA Washington District Office
Suite 556, 1730 K Street, NW
Washington, DC 20006
If you live in Alaska, northern California, Idaho, Nevada, Oregon, Utah, or Washington, contact:
PWBA San Francisco Regional Office
Suite 915, 71 Stevenson Street
P.O. Box 190250
San Francisco, CA 94119-0250
PWBA Seattle District Office
Room 860, 1111 Third Avenue
Seattle, WA 98101-3212
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My wife (53) and I (49) have been married for 20 years and live in the San Francisco Bay area. We live simply, have no children, have no debt, own our home (3,000 sq. ft. in a nice area), are in good health, have a long-term care policy, and have $1.2 million in cash equivalents and tax deferred investments. At age 65 I will be eligible for Social Security and approximately $43 thousand a year in pension benefits. At age 56 my wife will qualify for $43 thousand a year in inflation-adjustable pension benefits.
We have listened to your specials on KQED and have benefited from your wisdom. Lately we ask ourselves, "When can we realistically retire?" Do you have any advice?
Whether or not you're ready to retire depends on the answers to two questions. One is emotional; the other is financial. The emotional question is, Do you know how you want to spend your time after you stop defining yourself by your career and start identifying yourself by who you are? Thinking this through is more difficult than most people imagine. Please give it a lot of thought.
Now to the financial part. Since the average life expectancy of a person in good health extends in to the late 80's, many of us will spend more years in retirement than we spent working. For you, right now, retirement might mean a period of 30 to 35 years or longer. So the following question has to be asked and answered: How long will your retirement income last? Will it last for 35 years-or for 45 or 50 years if you're one of the growing number of people who live into their 100s? Twenty-five years from now, will you and your wife still be able to live on a combined $86,000 in pension income, plus Social Security and the conservatively estimated interest income that can be taken from your investments? I say that this interest income must be "conservatively estimated" because I want you to calculate your future income based on interest from very safe investments, and also to be sure that you project a level of interest that it's realistic to believe you can obtain. In this environment, I would not project above 6 percent a year. Please also be sure that you won't have to invade your principal.
About your tax-deferred accounts: Take into consideration that, if and when you start withdrawing money from those accounts, you must first pay taxes on that money. After taxes, how much will really be left to generate income for you and your wife? Also, take into consideration what would happen if one of you were to die. Would one pension stop or be reduced? Finally, please remember to calculate that the one who remains will also be losing one social security check.
So this is how to figure out whether and when to retire. Calculate your true living expenses today and what you project into the future. Remember to add in expenses that you may not be incurring now, such as medications, additional help around the house, etc., and take into consideration future inflation of at least three percent a year. Next calculate your income and expenses if one of you should die. Bottom line: If the surviving spouse or life partner has more than enough money to meet the bills today and 30 years or more into the future, happy retirement, my friend! If not, keep a working and saving.
Maxed out on your retirement plans and looking for other ways to catch up and make your retirement dreams reality? Most advisors will tell you that the best thing to do is look into such alternative tax-deferred vehicles as annuities, but to my mind, buying an annuity is failing to see the forest for the trees. One reason advisors like to recommend this kind of investment is because most tax-deferred savings vehicles pay a 5-percent commission on the amount of money invested. But think about this: Most growth vehicles, whether or not they are called tax-deferred, carry with them at least some of the benefits of deferral. Let's say you buy a good no-load mutual fund geared toward growth, being careful to choose a fund that traditionally doesn't make big, taxable capital gains distributions at the end of every year. And let's say you let your money grow in this fund for the next ten years. For the most part, you won't pay taxes on this money while it's still sitting in the fund. And when you do eventually sell the fund, you'll pay the lower capital gains tax rate on the gains you've made, which ends up amounting to far less than the ordinary income tax you pay on withdrawals from a tax-deferred vehicle such as a variable annuity. In the long run, you'll be much better off deferring your taxes in good long-term growth funds or stocks than you would be with a typical tax-deferred investment.
An added incentive: Your family will benefit, too, because when you leave money in a good growth mutual fund or in individual stocks, heirs are only liable for capital gains tax rates on profits when they liquidate the holdings. With a typical tax-deferred investment like an annuity, they have to pay ordinary income tax on any gains.
In short, though my advice may seem unorthodox, this planner urges the following: 1) Invest the absolute maximum in your 401K or other retirement plan, starting now. 2) If you are 50 or older and playing catch-up, also try to pay off your home mortgage as quickly as possible; that way, you won't have your mortgage payment as an expense when you turn eligible to collect Social Security. 3) If you have at least ten years or more until retirement, start dollar cost averaging (for an explanation, see ROAD TO WEALTH, pages 366-368) into a good no load mutual fund or individual stocks geared toward growth. I promise you: You'll catch up.
Biracree, Tom and Nancy. Over Fifty: The Resource Book for the Better Half of Your Life. New York: HarperCollins, 1991.
Dychtwald, Ken, and Joe Flower. Age Wave: The Challenges and Opportunities of an Aging America. New York: Bantam Books, 1990.
Matthews, Joseph L. Social Security, Medicare and Pensions. Berkeley, CA: Nolo Press, 1996.
Ottenberg, Robert K. Kiplingers Retire and Thrive: Remarkable People Share Their Creative, Productive and Profitable Retirement Strategies. Washington, DC: Kiplinger Press, 1995.
Picker, Barry. IRAs at 70I/2: Barry Pickers Guide to Making Timely IRA Decisions. Order on line at www.BPickerCPA.com, or call (800) 809-0015.
Quinn, Jane Bryant. Making the Most of Your Money. New York: Simon & Schuster, 1991.
This exercise will take some time to complete, but please, lets put time and money in perspective. You have worked all your life to earn the money that you have. I am asking you to spend a few hours to bring your understanding of your money out of the darkness, to see the light of reality, to know exactly where you stand. That is the only way to protect your money and your future. Don't just read these pages. Pick up a pen and take action now!