|
When Can I Take Retirement? |
|
|
Reprinted with permission of Investment Representative Celine Richardson of EdwardJones
|
|
Friday, 01 February 2008 |
 When you retire, it would be convenient if all your expenses were
to "retire" as well. But they won't. In fact, you'll likely need
between 80 percent and 100 percent of your pre-retirement income
to maintain your standard of living in retirement. And you may even
need more, depending on what you plan to do during your retirement
years. So, well before you retire, ask yourself a couple of key
questions: Where will the money come from? And when can I get at
it?
Let's take a look at some of your likely retirement income "pools,"
along with the rules governing withdrawals from these sources.
- 401(k) plan - If you have a 401(k) plan at work, take full
advantage of it. Your earnings have the potential to grow on
a tax-deferred basis and you typically contribute pre-tax dollars,
so the more you put in, the lower your adjusted annual taxable
income. Generally, you have to be at least 59-1/2 to withdraw
money from your 401(k) without incurring a penalty of 10 percent
of the taxable amount of your withdrawal. However, you can avoid
this penalty under the following circumstances:
- You leave your employer when you are at least 55 or you
become disabled.
- You take a series of equal periodic payments, made at
least annually, for your life or life expectancy.
- You "roll over" your 401(k) withdrawals into an IRA. Of
course, you may not want, or need, to tap into your 401(k)
at either age 55 or 59-1/2. If that's the case, you can
leave your account alone and, hopefully, watch it continue
to have the potential to grow. But you will have to start
taking withdrawals when you reach 70-1/2, if you haven't
already done so.
- IRA - As is the case with your 401(k), you will, in most cases,
have to pay a 10 percent tax penalty if you take distributions
from your IRA before age 59-1/2. And you must begin taking required
minimum distributions from a Traditional IRA once you reach
70-1/2. If you have a Roth IRA, you face no mandatory distribution
rules, so you never have to touch the money, which means it
can potentially grow tax-free for years.
- Social Security - You can start taking Social Security when
you reach 62, but your monthly payments will only be about 70
percent to 75 percent - the exact amount depends on your age
- of your payments if you waited until your reached "full" retirement
age, which is probably 66 or 67. (Social Security determines
your full retirement age by your year of birth.)
To most effectively incorporate your 401(k) and IRA withdrawals,
and your Social Security payments, into your retirement income,
you'll need to consult with your financial advisor. Also, to make
sure you're not adversely affecting your tax situation when you
start taking these withdrawals and payments, talk to your tax advisor.
But don't wait until you're almost retired to start planning for
it. Your decisions on when to start taking withdrawals from your
various retirement accounts are usually irrevocable - so you'll
want to get them right the first time.
----
v4i5
|
