Posts Tagged ‘insurance’

Managing Your IRA After Retirement

Today people who retire at age 65 may very well be looking at a 30-year retirement. With such a long timeline, it is imperative to make the best use of IRAs before retirement, but after as well.

First and foremost, try to keep your retirement funds funded while you’re working. There are many opportunities to withdraw from your funds well before retirement age, but this should be done only as an absolute last resort.

There is no set time to undertake these steps. For example, while long term care insurance should be a consideration for most people after age 70, getting it while younger results in lower premiums. Therefore depending on individual situations taking out a policy at age 60 or even younger can be a good move.

In Your 60s

Thanks to recent changes in federal law, after age 50 one is entitled to make additional contributions to IRAs. In one’s 60s it may be time to consider consolidating your retirement plans into a single IRA as well, perhaps in the form of a qualified annuity issued by a life insurance company. It is possible to roll over these plans into a Roth IRA. If working well into the 60s is planned, this may be a good idea.

Remember, one can contribute to a Roth IRA at any age as long as one continues to receive earned income and meet the maximum income restrictions which don’t change based on age. Further, while distributions on a Roth IRA can be taken at any point after age 59 ½, they are not required until age 70 ½. If income needs can be met elsewhere, it may be a good idea to avoid tapping into the tax free distributions a Roth IRA provides until age 70 ½.

Name Your Beneficiary

It is always a good idea to name a spouse as a beneficiary for a traditional IRA sooner rather than later. The advantage is fairly straightforward: if the IRA owner dies with the spouse named as a beneficiary on the plan, the spouse can then simply claim that IRA as their own. Individuals other than spouses may also be named as the beneficiary on an IRA, but they must pay regular income taxes on the proceeds, either by cashing in the IRA within five years of the original owner’s death or over time by taking distributions.

IRA beneficiaries are revocable, which means they can be changed at any time during the life of the policy owner, or even a bit after. Current law allows an IRA beneficiary to be changed at any point before December 31 of the year after the policy owner’s death. This can allow a surviving spouse to name a child or another contingent beneficiary, and in the process significantly delay the tax impact of doing so.

What About Social Security?

Social Security benefits can be taken as early as age 62 and as late as age 70. However, the retirement age at which individuals are eligible for full Social Security benefits born during or after 1960 is 67. Taking benefits before then will subject the beneficiary to penalties. Conversely, waiting until age 70 results in higher monthly benefits. It is definitely in the interest of any future retiree to postpone taking Social Security until age 70 if possible, or at least until he or she hits the government-mandated full retirement age. People who live well into their 80s or later will find themselves particularly ahead of the game with this strategy.

In Your 70s

At age 70 ½ minimum required distributions (MRDs) on retirement income plans can no longer be deferred and must be taken, regardless of whether the policy owner is working at that time or not. Failing to do so will subject any MRDs not taken to a 50 percent penalty from the IRS. Although the policy owner technically has until April 1 of the year after she turns 70 ½ to take the first MRD, doing so may create a situation in which two MRDs are required in the same calendar year, which in turn could put the policy owner in a higher tax bracket. This should be taken into consideration when determining exactly when to take that first MRD.

This is a good time to review wills and long term care plans. If total retirement assets at this point are greater than $100,000 but less than $2 million, reallocating some of these assets to a long term care insurance (LTC) policy may be a good investment. If assets are less than $100,000, one is more likely to qualify for Medicaid; if more than $2 million, paying out of pocket may be a better idea. However as with life insurance, premiums are more inexpensive if LTC insurance is purchased at a younger age. If LTC is an option, make sure variables such as duration of benefits and elimination period – or the length of time one must be in a long-term care facility before one can receive LTC insurance benefits – are discussed with a qualified financial advisor.

In Your 80s

Hopefully by age 80 one has long established his or her retirement distribution strategy. One thing to consider at this age is that most people tend to spend less after age 80, so day-to-day income needs are likely to be less at this age.

Even after retirement, a savings plan should be followed. It is recommended that retirees in their 60s save 40 to 50 percent of their income, increasing to 50 to 60 percent in their 70s. This is actually more than is recommended for younger people. However if this is done, the recommendation is that saving up will no longer be necessary after age 80.

Dump The Commissions

Managing an IRA and other retirement sources after retirement can be a daunting challenge for even the most experienced investor. Many retirees may want to seek professional guidance in managing their affairs throughout what statistically promises to be a long retirement. What they are not likely to want, however, is an endless barrage of sales pitches for new financial products. After all, at this point one should be much more interested in making the best of what they already have. To that end, seek the guidance of a fee-only financial adviser, or one who is compensated entirely on client fees instead of company commissions. Their unbiased, sales-free guidance can be particularly useful after retirement.