There are enough books and other forms of guidance about retirement that one would expect to find all the advice necessary to secure a comfortable retirement. But not all of the advice and strategies necessarily will meet your needs.
What’s more, there may be “facts” about retirement and retirement planning that have been conventional wisdom for many years but could be worth challenging. Here are four of them:

“Fact” #1: You’ll need 60% to 80% of the income earned in your working years to live comfortably in retirement.
These figures pop up frequently and are based upon the assumption that certain job-related (and other) expenses will disappear once retirement begins.

But is it logical tp assume that you can live happily ever after on less money than you earned in your working years? Do you really want to live on less than what you are earning currently?

The answer to those questions is no if, for example, you expect to travel, pursue expensive hobbies or provide financial assistance to your children or grandchildren. And, unfortunately, illness or just advanced age may mean huge medical bills that might not be reimbursed completely by insurance. (Of course, if you no longer will have a mortgage, or need to pay college expenses any more, you could need less than that 60% to 80% of your income.)
Bottom line: Analyze your individual situation to determine how much that you’ll need to live on in retirement.

“Fact” #2: Retirement is a time for “leisure.”
There’s no longer a bright line dividing pre- and post-retirement. In a survey of 1,200 baby-boomers conducted by AARP, almost eight in ten reported that they expected to take a job after retiring.

For some the reason may be need, for others the desire to keep active. The relaxation of the rules for reduction of Social Security benefits when you continue both to work and to collect has meant more working retirees. Now retirees at the full retirement age may keep all of their benefits, no matter how much that they earn.

But some professionals note with caution a retiree’s potential earning power. According to Notre Dame economics professor Teresa Ghilarducci, “[j]obs for older workers generally don’t pay as well as those for younger workers, and the raises aren’t as good.” So, she recommends, when trying to put a number to your retirement income earnings projections, you may want to estimate on the low side.

“Fact” #3: Money coming from your tax-sheltered retirement plans is likely to be taxed at rates less than those at which you were taxed during your working years.

You make contributions to a 401(k), IRA or other retirement plan with pretax dollars. But you’ll begin paying tax when you take your money out—generally at ordinary income tax rates.

Today, for most middle- and upper-middle-income taxpayers, tax rates are likely to fall in the 25% to 30% range, significantly lower than in decades past. Those numbers aren’t likely to drop radically after retirement, especially if you continue to work. And, of course, with historically low income tax rates, it’s reasonable to assume that the only direction that rates are likely to go in the coming years is up.

When trying to figure out what you will net after tax from a distribution from your retirement plan then, it’s probably a good idea to assume that the money will be taxed at the top tax rate at which you’re currently paying tax.

“Fact” #4: Retirees should switch from stocks to fixed-income investments, such as CDs and bonds.
This statement is too broad a generalization to apply in all circumstances.

As we were recently reminded, the stock market can be volatile. Yet switching from stocks to bonds or cash investments is an oversimplified approach to reducing risk. For one thing, bonds can have their bad years as well.

And a strategy that does not produce an investment return that exceeds inflation is a losing one.
The best approach is an individualized one, tailoring your portfolio to your tolerance for the ups and downs of the markets and adopting techniques that handle risk in an intelligent manner, reducing uncertainty as much as possible, while seeking opportunities that will help your portfolio grow.
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We would be pleased to serve as your professional resource as you plan your retirement. We can offer valuable insights with regard to the management of your investments, both today, as you plan for retirement, and later as you enjoy your retirement years.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

There’s a fundamental rule that applies to tax-favored retirement plans such as IRAs: At some time tax deferral must end and distributions begin. To put teeth into the command that retirement assets must be exposed to tax, the tax code contains provisions for taking “required minimum distributions” (RMDs) from your IRA. Here are some answers to questions that you are likely to have about the RMD rules.
When must RMDs begin?
Required minimum distributions (RMDs) must begin when you reach age 70 1/2, with the first distribution received no later than April 1 of the following year. In subsequent years you must receive your RMD by December 31 each year. If you do decide to wait until April 1 for your first RMD, you still must receive another RMD by December 31 of the same year.
What if I don’t take an RMD, or I don’t take enough?
In any year that you fail to take an RMD, or take less than the full required amount, you will owe a penalty tax equal to 50% of the shortfall, in addition to regular income tax.
How is an RMD figured?
The IRS furnishes tables to determine your RMDs. Generally, most IRA owners use a “Uniform Lifetime Table.” But if your spouse is the sole surviving beneficiary of your IRA, and is more than ten years younger than you for the entire calendar year, you should use the “Joint Expectancy Table” to figure your RMD. It will result in a smaller RMD than the uniform table.
Can you give me an example of how much an RMD is?
To calculate your RMD, take your age and find the corresponding distribution period listed in the table, then divide the value of your IRA at the close of the prior tax year by the distribution period. For simplicity’s sake, let’s say that at age 70 the value of your IRA on December 1 of the prior year was exactly $100,000. The distribution period in the table is 27.4 years. Your RMD, then, is about $3,650.
Where do I find the tables?
Appendix C of IRS Publication 590 (Individual Retirement Arrangements) has the tables. And the trustee of your IRA rollover should be able to provide copies of the tables to you as well.
Is tax withheld from RMDs?
Withholding rules do apply, but you can elect not to have tax withheld. But if you do elect not to, the RMD amount must be included in your taxable income when you file your annual income tax return. You also may owe state or local taxes on your RMD.
May I take more than the RMD?
Absolutely. The benefit of taking only the RMD is that you are keeping more of your money (and the income that it earns) from being taxed currently. But taking more than the minimum in one year doesn’t mean that you can take an amount less than the full RMD in a later year.
May I roll over an RMD to another tax-deferred account?
No. RMDs are not eligible to be treated like distributions from a company retirement plan that may be rolled over to an IRA or another employer plan.
Must I take RMDs from a Roth IRA?
No. There is no requirement that you receive distributions from your Roth IRA during your lifetime. But your Roth IRA is subject to the RMD rules after your death.

If I have more than one IRA, do I need to take an RMD from each of them?
No. The amount of the RMD from each of your IRAs must be calculated separately, and the separate amounts totaled. But the total may be withdrawn from one or more of your IRAs in whatever amount that you choose.
Is help needed?
Although many of the rules have been simplified over the years, the subject of required IRA distributions is complex for anyone who is not a specialist in the field. Therefore, if you will need to figure your RMD yourself, seeking professional assistance may be critical, especially if you have a large balance.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

At the end of the first quarter of 2013, total retirement assets in the U.S. reached $20.8 trillion. IRAs had a 27.4% “market share” of the total, with an estimated $5.7 trillion. Most retirement capital is being managed by institutional professionals, but not so the IRAs. Accordingly, there are a great many possibilities for missteps. Here are three examples.

Failed Roth conversion of RMD

Q. I’m 73, so I have to take required minimum distributions (RMDs) from my $1 million IRA. To get around that, I transferred the full balance to a Roth IRA, and paid the taxes from my taxable portfolio. Any problems with that?

A. Just one. You can’t convert an RMD to a Roth IRA. In your case, the RMD comes to about $40,485. The good news is that you will be deemed to have taken the RMD, so there’s no 50% penalty for not taking it. The bad news is you’ve made an excess contribution to your Roth IRA of $40,485. There is a 6% excise tax penalty imposed on the excess contribution. Your best remedy is to cure the problem with a corrective distribution of the excess amount.

Missed the 60-day deadline

Q. I received a big retirement plan distribution which I meant to roll over to an IRA, but I didn’t get to it within 60 days. What can I do now?

A. The best way to handle a rollover is a trustee-to-trustee transfer. Are you certain that you received a distribution? That is, if the distribution check is made out to the recipient plan, instead of to you, this may still be a trustee-to-trustee transfer. Such a check may be delivered to the payee plan after the 60-day deadline has passed, even after the death of the participant.
If that solution is not available, the next question is whether an exception to the 60-day rule might apply. These exceptions are:
First-time homebuyer. Let’s say your withdrawal was a “first-time homebuyer” distribution. If there is a delay or cancellation of the purchase or construction of the home, the amount withdrawn may be recontributed back into the IRA without penalty. The time limit on this is 120 days, instead of 60 days.
Disaster-based extensions. If a federal disaster has been declared in your area, the IRS may issue a pronouncement on the availability of automatic extensions for various filings, which may include your rollover.
Financial institution errors. If you took action within 60 days, but the deposit to the IRA happened after 60 days solely due to an error by your financial institution, you can get an automatic waiver of the 60-day rule. This works provided the funds are deposited in the eligible plan within a year of the original distribution.
Frozen deposits. If a bank becomes insolvent, so that a participant can’t get the money out in time to meet the 60-day rule, the rule is suspended. The time during which the money has been frozen doesn’t count toward the 60 days, and the participant has 10 days after the assets are unfrozen to complete the rollover.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

Retirement is sometimes defined in terms of what one is leaving behind—a career, difficult clients, job stress, the daily commute, the grind. But for retirement to be fully satisfying, according to many experts, one needs to retire to something, not just from something. Defining that “to” and giving it a tryout is what we mean by “pretesting” your retirement. Here are some examples.

Donate your time and expertise. An attorney acquaintance of ours spent most of his career as in-house counsel for a major oil company. As he approached his retirement years, he arranged to be allowed to do pro bono legal work for immigrants. He found the experience so rewarding that after he started drawing his oil company pension, he founded a law firm specializing in such pro bono work.

The “soft launch” of a retirement consultancy. Another acquaintance thought his years of experience in the banking business might be valuable in creating a marketing consultancy for financial services firms. Before he retired, this person tried out some of his ideas with the advertising agency that his bank used. Both sides found the experience valuable, and a basis was created for the individual’s new marketing firm. He was able to have a clear financial path to follow once his regular full-time employment ended.

Try a month’s vacation. It would be a shame to retire to a quiet, secluded life-style, only to find it boring after a few months. Many retirees report that they miss the camaraderie of their working lives after they retire. Before deciding upon retirement relocation, it can be helpful to spend an extended period of time in the possible new location, to see what day-to-day life would be like there.

As you conduct these tryouts, you should monitor your finances, noting any adjustments that may be required. You may find that your spending needs change or vary from your expectations, and that may influence your choice of a retirement start date.

Testing the water early can head off unpleasant surprises after one enters retirement. By then, many decisions have become irreversible. If you’d like a professional review of your financial readiness for retirement, we’d be pleased to give you our evaluation.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.