Retirement Planning

When I retire in about a year, I'm expecting a six-figure distribution from my employer's 401(k) plan. The success of my retirement turns on what I do with this money, and I'm more than a little unsettled by the prospect. What should I do to keep my all my options open?

I don't have $5 million. I don't need to worry any more about estate taxes, do I?

To make it possible for voluntary retirement savings to keep up with inflation, the various numerical limits embedded within qualified retirement plans are indexed for inflation. In October the IRS announced the numbers that will apply in 2012, as shown in the following table

When you hear about the challenges of building a financially secure retirement, or think about your own plans, here are some facts to keep in mind.

A substantial portion of the trillions of dollars that will be transferred through the estates of baby boomers in the coming decades is expected to be in IRAs, qualified retirement plans and other tax-preferred accounts. IRA rollovers have grown significantly as workers have moved their 401(k) money at retirement in order to extend its tax-deferred status. Planning for the inheritance of this money is assuming greater and greater importance. In particular, can this money be shielded from the claims of beneficiaries' creditors?

The tax compromise reached by Congress and the President in December had explicit and implicit effects on planning for your IRA.

To make it possible for voluntary retirement savings to keep up with inflation, the various numerical limits embedded within qualified retirement plans are indexed for inflation.

Is sooner better than later? Upper-income taxpayers are not permitted to make contributions to Roth IRAs. The boundary in this case for 2010 is $120,000 adjusted gross income for singles, $177,000 AGI for marrieds filing a joint return. If these taxpayers want a Roth IRA, the only route is conversion. For example, a traditional IRA may be converted to a Roth IRA by anyone, regardless of income, beginning this year.

The good news for retirees is that life expectancies are growing longer. In 1955 an American aged 50 could expect to live to be 75. By 2005 that figure had jumped to 81. What's more, a 50-year old now has a 24% chance of surviving to age 90 and beyond. (These figures come from WolframAlpha.com.)

This year, everyone has the opportunity to convert a traditional IRA to a Roth IRA. The downside is paying the ordinary income tax due on the conversion. Where is that money to come from? Financial planners have generally recommended against invading the Roth IRA for the tax money to avoid compromising this important retirement asset. But not too many taxpayers have tens or hundreds of thousands of dollars lying around in cash, ready to dedicate to this purpose.

Growing old isn't always easy. There’s the financial uncertainty of living on a fixed income; health problems may become more acute; hearing and vision tend to weaken; stamina falls off.

In 1987, Congress directed the Bureau of Labor Statistics to begin calculating a Consumer Price Index for the elderly. Does the CPI accurately reflect the changes in the cost of living experienced by retired Americans, and so have the inflation adjustments to Social Security benefits have been done appropriately? An experimental CPI-E was created for the population aged 62 and older, using 1982 as the base year.

DEAR TRUST OFFICER: How much should I budget for medical expenses in retirement? Won't Medicare cover most of this expense? -LOOKING TOWARD RETIREMENT

As a rule, financial planners favor consolidating IRAs into a single account for ease of management. Having lots of different accounts means lots of different statements and, very often, an incoherent and impulse-driven investment approach. However, there is a circumstance in which having multiple accounts can be advantageous. It has to do with conversions of traditional IRAs to Roth IRAs.

Automatic cost-of-living adjustments (COLAs) were created for Social Security benefits in 1975. For the first time since then, in 2010 there was no COLA. Here are the basic Social Security numbers for your reference.

In the debate over which is better - the immediate tax deduction for contributing to a traditional IRA or the potential for tax-free income from a Roth IRA - the answer tends to turn on one's assumptions about tax rates. Conventionally, one expects to be in a lower tax bracket during retirement, perhaps dramatically so. That favors the traditional IRA. These days, however, those at higher income levels have been told repeatedly that their tax rates will be going up in the future, perhaps sharply. If so, the advantage shifts to the Roth IRA.

In personal bankruptcy proceedings, the general rule is that IRAs and other qualified retirement assets are protected; they not subject to the claims of the individual's creditors. However, a recent Florida court case showed that every rule has its exceptions.

IRAs have become a mainstay in many retirement portfolios, very often as receptacles for lump sum distributions from employer plans. Here are three private letter rulings that illustrate some of the complexities that may come with these accounts. The names in these otherwise true examples are fictitious.

With asset values low, some owners of traditional IRAs may be wondering whether this might be a good time to convert their accounts to Roth IRA status. There is a significant tax cost associated with the transaction, because the full amount of the conversion is taxable at ordinary income tax rates. The benefit that makes the price worth paying is the potential for tax-free growth in all the years following the conversion, coupled with freedom from the required minimum distribution rules.

What would you do if you suddenly came into a lot of money? Such as, for example, winning a $144 million Powerball jackpot? That was the question faced by a long-time Washington, D.C., resident who bought a single $1 lottery ticket with the numbers randomly selected.

Although the stock market has been doing better lately, it is still well off the highs of 2007. Many IRAs have been hard hit by the fall in asset values. However, even bad markets can create tax planning opportunities.

If you are like some people, you may not want to leave your home, ever. But suppose that after you retire, your plan is to move out of state, or you're healthy and active but just tired of all the work associated with home ownership.

If you're approaching - or already have crossed - the finish line to retirement, you should focus on meeting two goals. One, providing yourself with an income that will let you live comfortably, and, two, making certain that your retirement resources will last for your lifetime.

Every year, certain cost-of-living adjustments (COLAs) are announced that may increase what you can contribute to your retirement plan and IRA. Social Security benefit amounts rise and other figures related to Social Security change as well. (The 5.8% increase in benefits is the largest since 1982.)

Will you be rolling over your 401(k) or other retirement money to an IRA? Or transferring your money from one IRA to another? If so, be aware that the IRS has been taking a very hard line on technicalities.

Managed effectively, your 401(k) plan account is likely to provide a powerful boost to your retirement savings. But a widely discussed new survey has raised some significant doubts about how well participants are managing their investments and the extent to which they are taking full advantage of their plans.

When you retire or change employers, arranging for a rollover directly from your company retirement plan to an IRA allows you to continue to defer tax on your money until you reach age 70½. Then you'll have to begin making annual taxable withdrawals.

If you are thinking about opening a Roth IRA (or already have one), its not surprising if there are some gaps in your knowledge about them. Roth IRAs come with a host of requirements and limitations. The following are some of the questions that people often ask us, along with our answers:

As the generation of baby-boomers nears their golden years, they will need to address a new set of financial issues. Sure to be among them is the question of how to pay for long-term health care costs and whether to purchase a long-term care insurance (LTCI) policy.

Even if retirement is still in the distance, you're likely to have some ideas as to how you'll enjoy your leisure years. Some people look forward to spending time with distant family. Others choose to travel to destinations that they have long wished to reach. For others it may be as simple as pursuing a long-put-off hobby or pastime.

Many of the figures that you need to know for your retirement and Social Security planning rise by schedules that have been introduced in previous years' tax legislation or through provisions for annual cost-of-living adjustments (COLAs).

Retirement planning intersects with other aspects of your financial planning. The most obvious examples are estate planning and planning for incapacity or illness. When taking a more comprehensive approach to your retirement planning, a brief survey of what elder law is all about may be beneficial. (A general understanding of elder law may be helpful, too, for those who now care for a spouse or relative with long-term needs.)

The fear of outliving ones retirement resources is a reasonable one. After all, advances in medical treatment and healthier lifestyles have resulted in increased life expectancies. For financial security and peace of mind, you will need to know that you will have a steady stream of retirement income to keep you comfortable for 20 or 30 years - perhaps even longer. At the same time, a longer life span suggests that you need to have funds in reserve to meet any extraordinary expenses that may arise during your lifetime.

According to the most recent figures available from the U.S. Department of Labor's (DOL) Employee Benefits Security Administration, of the 59 million wage-earning and salaried women working in the U.S., only 47% participate in a company retirement plan.

Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. The news isn't good.

Most people are aware that the key difference between traditional IRAs and Roth IRAs is the timing of the tax benefit. Traditional IRAs will, for many taxpayers, yield an up-front tax deduction, with distributions taxed as ordinary income. Contributions to a Roth IRA are made with after-tax dollars rather than pre-tax dollars, but retirement distributions that occur five years or more after the account is created are completely tax free.

Didn't make a contribution to your IRA or Roth IRA for 2006? It's not too late.

Many of the figures that you need to know for your retirement and Social Security planning rise by schedules that have been introduced in previous years' tax legislation or through annual cost-of-living adjustments.

As you near the end of the final lap of your working years, and begin scanning the retirement horizon, you are likely to be seeking the information that you need to ensure a safe passage. Here, we touch on three of the most important questions that you should be asking yourself as you transition to retirement.

In August Congress passed the most comprehensive pension legislation in more than 30 years (a more than 900-page opus). The provisions in the law are wide-ranging, focusing to a large degree on how companies must handle their pension plans in the future.

Taxes play an important role in your retirement planning. For instance, if you are a 401(k) or other retirement plan participant and will receive a lump sum distribution, taxes may affect your choice of what to do with the payout.

What does early retirement mean to you? A chance to escape the pressure and routine sooner rather than later? To get started on the activities that you've delayed for too long? It even may not truly be retirement in the usual sense, but the chance to start work on your own schedule, one that doesn't make too many demands on your time or energy.

Company retirement plans, charitable organizations and other entities must define clearly, in writing, exactly how the contributions that they make are invested and managed. One of the ways that this goal is accomplished is by drawing up a document, often referred to as an Investment Policy Statement (IPS). For individual investors, too, an IPS can be a useful and valuable document.

The annual Retirement Confidence Survey, cosponsored by the Employee Benefit Research Institute (EBRI), a private, nonprofit, nonpartisan public policy research organization, and Mathew Greenwald

Establishing a retirement plan for a child might, initially, sound a bit strange - or at least premature. Truly, it is not. Establishing an IRA for your children or grandchildren can help them achieve financial independence in retirement and, possibly, for the rest of their lives. That claim may raise some questions in your mind.

The lure of an affordable cost of living and temperate climates is leading a growing number of Americans to retire abroad. Many others are looking at the financial aspects of the idea. In some cases it may be a return to one's native country or that of one's forebears. Perhaps it's to a place where one once worked or studied.

Jones (name fictitious, but the facts are true) had opened a Rollover IRA when he decided to retire in his early 50s, after a long and successful career with his company. He rolled over his lump sum distribution from the company retirement plan into an IRA.

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:

The rules regarding the taxation of distributions from your 401(k) plan or IRA are complicated, if not mind numbing. There's much too much even to explain in one sitting, let alone absorb. However, some questions pop up with frequency. Here are three of them and answers that may provide you with some guidance.

Whatever your hopes and dreams for retirement, the reality is that the income that replaces your wages will prove to be the key to attaining the quality of life in retirement that you envision. Social Security is a start. A pension from the company retirement plan may augment that income. But managing the income from your investments will require a more active role. Below are three key decisions, among many, that you'll need to make.