If you have not already started planning for your retirement you should start today.

While everyone looks forward to their golden years a lot of people are afraid of retirement or have no idea what kind of retirement savings it will take to make for an enjoyable retirement.

One of the great tools available to help with your retirement planning is a retirement calculator.

As you might expect, a retirement calculator is more useful if you use it early in your working life. If you wait until you are just a few short years away from retirement age the calculator will only be able to tell you how much your income will be after you start working.

However, if you use the retirement calculator when you have thirty or forty years of work ahead of you it can give you a much better picture of what your golden years can look like and how to avoid retirement risks as well as plan to make your dreams come true.

What A Retirement Calculator Can Tell You

Income Target

The retirement calculator can figure out how much money you will need to make in order to have enough to live the life that you want after you stop working.

It not only takes into account the basics like food and housing but also the other things on which you spend money. It can then tell you how much you need just to get by and how much you will need in order to maintain your current lifestyle.

Interest Rates

One of the ways to earn money for your retirement is through wise investments. The calculator helps you figure out just how much interest you need to earn on your investments in order to meet your income goals.

Retirement Timeline 

Your calculator can look at options for retirement dates. It can help you decide to retire early or delay retirement to spend a year or two extra working.

Principal Amounts 

The principal amount of money you hold in your accounts will dictate how much interest you are able to earn. If you withdraw too much money you will stop earning interest, which is a big part of your retirement income.

A good calculator will help you figure out how much you need for retirement.  It will show how much you should put in to that account and how much you can withdraw and still maintain a balance that you are comfortable with and that maintains your interest earnings.

Here’s a great Retirement Calcuator at CNN Money that can walk you through your retirement planning.

Reviewing Your Progress with the Retirement Caluclator

As you go through life, your goals and earnings are likely to change. If you go back to the retirement calculator on a regular basis it will help determine if you are still on the right course or if you need to make changes to meet your goals.

Even if you have already retired the retirement calculator can still help you. By taking the time to plug in your financial numbers from time to time you can evaluate your spending to make certain you do not use up your nest egg too quickly.

Everyone looks forward to the time when they can stop working for good. We all dream of spending more time doing the things we really enjoy without the stress of working day in and day out.

The best way to make sure your retirement exceeds your expectations is to start planning early so that you have the funding you need to relax and enjoy your golden years.

Start as early as possible and use tools like a good retirement calculator and your retirement dreams will be easier and faster to reach then you imagined.

This article was written by William Eve. William writes about saving money, investment loans and real estate for Home Loan Finder. If your a first home buyer or looking to refinance, visit the Home Loan Finder website for great advice and to compare home loans today.

Have you noticed the vast number of websites and magazines talk about the outrageous amounts of retirement savings you’ll need in order to retire in the lifestyle you want?

They make saving for retirement  such a lofty goal that it’s less than motivating!

Saving millions of dollars when some of us are barely getting by seems like a goal that will never be reached.

So what do we make of all this talk that you need at least $3,000,000 in retirement savings?   Can you really afford retirement if that’s the case?

Let’s take a look:

Why Do Some Suggest You Need Millions to Retire?

Understanding where some of these large numbers come from will help put this in perspective for us.  Have you heard of something called Withdrawal Rates?

Basically, a withdrawal rate simply identifies the percentage at which you draw from your retirement savings. 

For example, if you have $300,000 in an IRA and you are pulling out $30,000 for income each year – what withdrawal rate would that be?  Yes! 10% – very good class.

The consensus says that a “safe” withdrawal rate, which means how much you can reasonably withdraw without running out of money, is 4%! 

So if you have a $300,000 portfolio and you go with a “safe” withdrawal rate, then you could only pull out $12,000 per year or $1,000 per month for retirement.

Let’s say you’re making $80,000 per year pre-tax and you want to maintain that income in retirement as well as keep within your “safe” withdrawal rate you would need to have $2,000,000 saved in order to do that!

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How Much Do You Really Need to Retire?

How much money do you need to retire?  This is the magical question right?  Unfortunately, there isn’t just one answer that satisfies every single situation. 

Your situation is probably different than your neighbors or your co-workers.  The variables are so different that it’s tough to just come out and say, “You need X amount to retire!”. 

But, that’s what sells magazines and gets people reading blog posts.

So, what is the right answer then?  Well, the “right” answer is “it depends”, but let’s delve into that a little further.

Here are some good questions to ask to help get us closer to the answer:

• Will you have any liabilities in retirement?
• How far away is your goal?
• Will you have a pension or other sources of income in retirement?
• Do you plan to downsize or upsize your home?
• Do you plan to travel extensively?
• What sort of things do you want to do in retirement?

Maybe you’ll have all your debts paid off and really just need enough to pay your real estate taxes, utilities and normal monthly expenditures like food and clothing.

Perhaps you want to travel the world and maintain winter and summer homes.  The point I’m trying to make is that the amount of retirement income or retirement savings you need depends on what you want to do.

Figure out how much it’s going to cost you to live and work your way backwards.  Sure it’d be nice to live off your pre-retirement income, but you may not need to!  And that is perfectly OK. 

In fact, it’s good to simplify your lifestyles and look for opportunities to give to others instead of spending lavishly on yourself! 

Retirement Success?

Understanding what your goals are, how much those goals will cost, how to create additional revenue streams in retirement and living simply will help push you to retirement success.  

But to me, in its simplest terms – retirement success is about people, passion and purpose! 

Don’t forget that retirement is a great time to build relationships with family, friends and neighbors.  It’s also a great time to pursue your passions, your hobbies and your joys! 

And most importantly, it’s a great time to live life on purpose!   God has put you here for a reason, so figure out what God has in store for you and live for Him.

Also remember that right now is a great time to pursue those things as well!

You may not save $3,000,000 in retirement savings, but do the things you need to do to get on track financially anyway – like working hard at becoming debt free, socking money away, and giving generously, and you’ll be surprised – you might just be able to afford retirement after all.

What Are Your Thoughts?

Do you think you’ll be able to afford retirement?

This was an original post I wrote for ChristianPF.com, you can check it out here.

So we are about halfway through 2010!  Hard to believe isn’t it?

Although some of the buzz has seemingly died down about the year of the Roth IRA Conversion, there is still some controversy regarding whether folks should convert their Traditional IRAs to a Roth.

For those of you wondering what exactly is a Roth IRA,  Well, here are the basics:

A Roth IRA is funded with after-tax contributions; the money grows tax-deferred; and withdrawals are TAX FREE!

In other words, you use money you’ve already paid taxes on to fund the Roth, and provided you meet certain qualifications you never have to pay taxes on that money again!

What is a Roth IRA Conversion?

A Roth IRA conversion then is withdrawing money from a Traditional IRA and putting it into a Roth IRA where it will grow tax free.

Sounds good right? 

Well, the problem is that whenever you do this you have to pay taxes on the amount you withdraw from your Traditional IRA. 

So, let’s say you are converting $5,000 from your Traditional IRA — you would have to tack on 5G’s to your income for the year and pay tax at whatever rate you are at.  It’s as if you earned an additional $5,000 of income for the year.

As many of you already know, one big change for 2010 is that anyone can convert to a Roth regardless of income level. Previously, if you made over $100,000 you could not convert to a Roth.

If you convert in 2010, you now have a choice to pay all of your taxes in 2010 or average the taxes owed on the conversion over two years (i.e. pay in 2011 and 2012).  Uncle Sam is giving you a choice on when you pay your taxes.

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Don’t forget though that 2010 is the last year for the current low income tax rates. The current law plans for higher tax rates in 2011 — so, if you chose to average your tax payments over the two year period in 2011 and 2012, you might get hit with higher tax rates.   That Uncle Sam – he’s always got an angle doesn’t he?

Should You Do a Roth IRA Conversion?

Back to the question at hand.  Should you perform a Roth IRA Conversion in 2010? 

Usually the answer to such questions is “it depends”.  This might be a great year to convert your money to a Roth and potentially pay lower taxes than you would normally if you are in a lower bracket due to retirement or a layoff and you’ve got some cash on hand to cover your taxes! 

This is important because if you are under 59 1/2 and use your IRA to pay the taxes on the conversion you’ll get whacked with a 10% penalty on top of the taxes!

Let’s take a look at some things to consider:

Factors to Consider for Your Roth IRA Conversion

• Do you have money to cover your tax liability?  Having cash on hand to cover your taxes will help soften the blow, and you certainly don’t want to pay taxes with the money you are converting.
• Will the money you convert push you into a higher tax bracket?  If so, you probably don’t want to do it.
• Do you have non-deductible contributions in your IRA?  No taxes are due on the non-deductible portion.  *There are some additional factors about non-deductible IRAs that I covered in a post at Bible Money Matters.
• Are you planning on applying for financial aid for yourself, your spouse or your child?  Better think twice about the conversion – conversion income counts on your application.

Ultimately, whether you convert your Traditional IRA to a Roth will not determine your retirement success, there certainly are other things to consider to help you make a great run at retirement. 

So which retirement account is right for you?  Consider the above  factors, your overall situation and the Roth IRA conversion rules to determine whether the Roth IRA conversion makes sense for you in 2010.

This was a post I originally wrote for ChristianPF.com and adapted here for my site.

“Mr. Jones, we appreciate your work for us, but unfortunately there’s just not enough room in our budget for you.

Here’s a packet of information regarding your retirement account.  Please look this over and have a decision made about your 401k plan by the 31st.”

Ever hear these words?

Maybe your company didn’t sound as nice, but the result was the same.

Or – perhaps you left on your own terms and are embarking on a retirement journey or looking for a new career path.

Any way you slice it, there is one question that remains:

“What should you do with your 401k plan?”

Let’s take a look at four options to help you make an informed decision on what you should do with your 401k plan upon retirement or separation from service whether you have a million dollars or several thousand.

Leave Your 401k Plan With the Current Company

Generally, you can leave your 401k with your current company – or should I say your previous employer.

But this isn’t always the case.  Many times, companies want you to get those funds out of there because of costs to them.

If your company does allow you to leave it – then you can just keep your 401k plan with the same custodian, use the same investments and keep things as is.

Advantage:

It’s easy, generally cost effective and doesn’t require much thinking on your part.  Just keep the status quo.

Disadvantage:

You have your money with your former employer’s custodian.  That could possibly make for some discomfort – even though your employer legally can’t do anything with your money, some folks would rather cut ties completely.

Your money is invested with whatever custodian your company chooses – and they can change whenever they want, to whomever they want.  That means your funds could change simply because your former company wants to change.

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Take a Distribution From Your 401k Plan

You could take money out of your plan, have a check cut and sent directly to you.  Perhaps you need the cash and are more worried about making ends meet with the loss of your job than you are about preserving your retirement future.

Advantage

Access to cash if you need it within a relatively short period of time.

Disadvantage

If you are under age 55 when you retire or separate from service there is a 10% penalty for early distribution.  

If you are over 55 that is waived.  Yes, you read that right – age 55. This is called the age 55 Exception where the IRS allows you to take a distribution from a 401k provided that you are age 55 at the time of your separation from service and that you leave your 401k at your company – in other words you cannot roll it to an IRA first and then take distributions and expect to avoid the penalty.

There is also a mandatory 20% tax withholding from your custodian, which they will send to the IRS for you.

Take Your 401k Plan With You to Your Next Employer

One option you may have is to take your 401k plan with you to your next job.  You’ll have to check with your new employer to find out if this is allowable, but generally speaking many plans will let you transfer that old 401k into the new plan.

Advantage

Easy.  Combining your funds helps with compounding interest earned on that 401k balance.  There are no tax consequences.

Disadvantage

The new company may not have the greatest 401k plan available.  There may not be a good variety of funds.  Again, the custodian can be changed at the employer’s discretion, which means you still don’t have much control over your funds.

Roll Your 401k Plan Over to an IRA

You can do a direct rollover to an Individual Retirement Arrangement or IRA.

Advantage

You are in the driver’s seat.  The money is in your own account which you have discretion.  You can make changes, you can make the investment choices, you can pick the custodian or brokerage company that you feel most comfortable.

You don’t have the company limiting your investment options.  You can invest into pretty much anything you want.

You can even open a Roth IRA and do a Roth IRA Conversion on the money if you wanted to – you are making decisions, not your employer any more.

There are no tax consequences to performing a direct rollover.

Disadvantage

This requires a bit more work on your part.  For example, you’ll need to research a custodian, research investments – whether it is stocks, mutual funds or ETF’s.   You’ll need to essentially manage your own account unless you hire a professional to help you, which of course you’ll have to pay fees to do so.

The 401k generally allows for creditor protection in a bankruptcy or by plaintiffs in a civil lawsuit. IRA funds, however, are limited in their protection and the rules differ from state to state.

What Are Your Thoughts?

As you can see, there are some decisions to make once you leave your job. Some of these are more advantageous than others, so be sure you do your homework and figure out what’s best for you for your retirement.

Readers, what would you do – or what have you done in this situation?

Risk is defined as the probability of loss or injury.

It generally weighs the downside potential of a particular investment or opportunity.

In regards to your retirement savings, there are several risks to consider.

Let’s take a look at five risks that could jeopardize your retirement savings:

Investment Risk

Most folks have their retirement savings sitting in some type of investment mix or portfolio. 

Even a conservative investor may have a model portfolio with 20% stock!

Any time you invest money in the market, you are taking on investment risk.

In simple terms, investment risk is the downside potential of a particular investment.

How to Deal With It

The first step is to assess your investment risk.

How aggressive of an investor are you?  Do you lose sleep at night when the Dow drops a couple hundred points during the day?

Make sure your investment risk is in line with your comfort level and your risk tolerance.

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Longevity Risk

These days, retirement savings are affected more and more by longevity risk.

Longevity risk to your retirement savings has to do with how long you live compared to how long your money lasts!

Does longevity run in your family?  Do you plan to hit the century mark?

Obviously the longer you live, the more money you will need to have. 

For example, say you retire at age 65.  If you plan on living to age 95, that is a 30-year retirement you need to pay for!

How to Deal With It

Of course none of us knows when we’ll see our last day on earth, but we can still plan.

Longevity risk can be dealt with by running numbers and making sure you’ve saved enough to cover your expenses and lifestyle for say a 30-year retirement life span.

You can also use things like annuities that provide guaranteed income for life – like your own mini-pension.

Health Risk

Ok, so we all face the possibility of being diagnosed with some catastrophic disease, however, the odds go up in retirement.  It’s a natural part of life.

You could face the possibility of needing a stay in a nursing home, or having someone come into your home to help take care of you. 

You could just be facing doctor appointments after doctor appointments and need some good medical insurance.

Either way – if you don’t have a game plan, you could be faced with having to go on Medicaid – which is basically welfare insurance.  It requires you to “spend down” your assets so you can qualify.

How to Deal With It

Check into Long-Term Care insurance (which covers nursing home or at-home care) to see if it is a right fit for you.  Also do some research on your health coverage for retirement. 

Will you be on Medicare?  Will you have your own individual coverage until 65 if you retire early?

Liquidity Risk

Generally in finance, liquidity risk is defined as the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).

I’m going to refer to it as something different.

I’ll define liquidity risk as the lack of having cash or short-term assets in retirement to help supplement your retirement income.

You’ll want to have a good cash-reserve and probably some short-term investments as well.

In other words, you don’t want all of your retirement savings tied up in long-term assets that potentially require big surrender charges to get out (i.e. – annuities, real estate investment trusts, B-share mutual funds etc)

How to Deal With It

Diversify your assets according to time-frames as well.  In other words think about your retirement savings in three buckets: Cash, Short-Term & Long-Term.

Be sure you know if your accounts will have back-end charges or will require you to stay in them for a long period of time.

Tax Risk

I talk a lot about tax diversification.  All too often, I see people falling in love with their 401ks and creating a huge retirement tax-time bomb for themselves!

When all of your retirement savings nest egg is sitting in tax-deferred accounts, you don’t have much room to maneuver around the tax implications.

How to Deal With It

Diversify your retirement savings from a tax standpoint.  Check out whether you should open a Roth IRA. 

If you can’t contribute to a Roth, then look into whether a Roth IRA conversion makes sense for you.

Don’t just throw everything you have into your 401k because it’s easy.  Do the math, do some research and find out what makes sense for you so you can diversify your retirement savings.

What Other Risks Would You Include?

What risks might you put in this list?

Retirement is a fascinating topic don’t you think? 

Millions of people long for it, plan for it and obsess over it.

On a daily basis, people ask themselves questions like these:  when can I retire?; how much money do I need to retire?; and which retirement account should I be saving into as I get ready for that big day?.

The last question is what we want to tackle today – which retirement account is right for you?

We certainly won’t cover every single type of retirement account out there today, but I do want to tackle the big four – 401ks, Traditional IRAs, Non-Deductible IRAs & Roth IRAs to see which one(s) make sense for you.

Let’s take a look:

401k Retirement Account

401k legislation was written in 1978 and finally passed in 1980.  401k’s allow employees to choose to receive deferred compensation rather than direct compensation.  That compensation gets put into a 401k account that is invested.

401ks are tax-deferred retirement savings accounts.  Basically they allow you to reduce your taxable income, which gives you a tax-break now.

They also grow tax-deferred – meaning you are not taxed on the growth of the investments each year.

When you pull the money out in retirement, however, you must pay the Piper!  Uncle Sam will ask for all that deferral to be taxed.

Every dollar you pull out will be included in your taxable income for the year – it’s as if you earned that money. 

401ks – The Right Retirement Account for You?

401k retirement accounts are right for folks who like having an easy way to save for retirement (deductions are taken from your payroll), who want to reduce their taxes now and who are getting an employer match on their 401k contributions.

Traditional Individual Retirement Account (IRA)

A Traditional IRA works much the same way as a 401k except for the payroll deduction.  The limits are much lower in terms of what you can contribute as well.

If you are covered by a retirement plan at work and making between $56,000 and $66,000 for singles and $89,000 and $109,000 for joint-filers then the deductibility of your contributions are phased out.

That means you cannot deduct the entire amount of your contributions from your income. 

If you are making under that amount or you are not covered by an employer retirement plan at all, then you are able to fully deduct your IRA contributions.

Traditional IRAs – The Right Retirement Account for You?

A Traditional IRA is a great retirement account for those who may not have a 401k or other employer plan, or who perhaps do have one, but are making less than the phase-out limits and want to get tax advantages now.

Roth Individual Retirement Account (IRA)

Roth IRAs are Individual Retirement Accounts that do not give you a tax break up front.  Rather, they allow you to put in after-tax money, which then grows tax-deferred.

When you reach 59 1/2, you can take out your contributions and your earnings completely tax-free!

Like the Traditional IRA, the IRS has phase out rules for Roth IRAs.  For single filers, your Roth IRA contributions are phased out when your Modified Adjusted Gross Income (MAGI) is between $105,000 and $120,000.  Above $120,000 you are ineligible for a Roth IRA contribution.

For married filers, the phase-out limits are between $167,000 and $176,000 and above that you are ineligible for contributions.

Roth IRAs – The Right Retirement Account for You?

Who should open a Roth IRA?  Basically anyone who falls under the phase-out limits, wants to diversify themselves from a tax-standpoint and has ran the numbers and feels that income or tax rates will be higher in the future and their potential for tax savings is greater down the road than it is now.

Non-Deductible Individual Retirement Account (IRA)

A Non-Deductible IRA is simply an IRA that you contribute to when you are phased out of your deductiblility.  Remember how we said that if you are covered by an employer plan and make too much money you can’t deduct your contributions? 

A Non-Deductible IRA is the result.

Last year I would never have given the non-deductible IRA a second thought.  It made very little sense to contribute to them. 

This year, however, it may make a lot of sense for folks.  Here’s why:

The income limits for Roth IRA conversions have been lifted, meaning anyone can convert money to a Roth IRA!

I won’t get into the details of this strategy here, since I talked about covnerting non-deductible IRA contributions at length in this post - but quickly, here is the strategy:

Make Non-Deductible IRA contributions (no tax write off); convert those contributions to a Roth IRA (no taxes owed); let your money grow tax-free in the Roth IRA (no taxes owed) and then pull out the money in retirement (no taxes due!)

Non-Deductible IRAs – The Right Retirement Account for You?

This strategy is right for those who make too much money to simply contribute to Roth IRAs, but still want to take advantage of tax diversification by getting money into a Roth.

Which Retirement Account is Right For You?

Readers, let’s hear from you – which is your favorite retirement account and why?

By now you’ve all heard of the opportunity for Roth IRA conversions right?

Ok, but maybe you are unsure what a Roth IRA conversion is all about.

Let’s dispel any myths about this and take a look at exactly what’s going on for this year for Roth IRA conversions.

This post will be more of a lesson in what’s happening than a post to convince you one way or the other to do it.

So let’s jump in!

What is a Roth IRA

First, let’s start with the basics.  I run into quite a few people who are unaware of what a Roth IRA even is.  Most everyone has heard of it, but are simply unsure how it works.

So,  What is a Roth IRA ?  Here’s the basics:

A Roth IRA is an Individual Retirement Arrangement that is funded with after-tax contributions; the money grows tax-deferred; and withdrawals are TAX FREE!

Think of it this way – already taxed money goes in – and comes out completely tax free.

It’s a pretty sweet deal if you qualify, meet specifications and figure that your tax rate will be be higher in retirement than it is right now!

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What is a Roth IRA Conversion

What if there was a way to take money from a fully-taxable account and put it into a tax-free account for life!?

That’s exactly what a Roth conversion is. 

You are taking money from a Traditional IRA and transferring it, or converting it to a Roth IRA. 

So what happens is you get money out of a position that will be taxable to you in the future and get it into an account that will never be taxed again!

Sounds like a pretty sweet deal right? 

Uncle Sam Will Love You and Your Roth Conversion

The problem is that whenever you do this you have to pay taxes on the amount you withdraw from your Traditional IRA for the Roth conversion.

*Uncle Sam pumps his fists!

So let’s say you want to convert $10,000 from your Traditional IRA – you would have to tack that on to your income for the year and pay tax at whatever rate you are at. 

It’s as if you earned an additional 10 large for that year!

What Changed in 2010 Regarding Roth IRA Conversions

One big change for 2010 and beyond is that anyone can convert to a Roth regardless of income level. 

Previously, if you made over $100,000 you could not convert to a Roth. 

Uncle Sam wants tax revenue!  So I’m surprised it’s taken this long to change that rule, but this is the first year.

The other big change for 2010 is that you have a choice to pay all of your taxes in 2010 or average the taxes owed on the Roth IRA conversion over two years ( i.e. pay in 2011 and 2012). 

Uncle Sam gives you a choice on when you pay your taxes.

But don’t get fooled, the current tax law plans for higher rates in 2011 - so you’ll possibly be paying for your Roth IRA conversion at higher tax rates!

*Uncle Sam rubs his hands together with a grin!

Things to Consider for a Roth IRA Conversion

 How you will pay the taxes – you don’t want to pay out of your IRA money, so be sure you’ve got some extra cash on the side to pay for it.

Are you over age 70 1/2 – if so, there’s this not-so-little rule about Required Minimum Distributions (RMDs) that must be satisfied first!

What tax bracket are you in? – Will the money you convert push you into a higher tax bracket?  Yikes – better think twice!!

Are you trying to get financial aid? – Whether it’s for you or for your kids, the Roth IRA conversion will count as income on the application!

More Insights into Roth IRA Conversions

For some good insights and varying opinions check out these articles from some fellow bloggers:

• Roth IRA Conversion: Good Idea? – From Consumerism Commentary
• Be a Sloth and Don’t Roth – From Financial Samurai
• Unforseen Consequences of the Roth IRA Conversion – Good Financial Cents
• Should You Convert to a Roth IRA in 2010? – Christian PF

Roth IRAs can be great tools to use for retirement – but, be sure to review the rules and regulations to determine whether you should open a Roth IRA and to see if a Roth IRA conversion is right for you.

This was a post I originally did for ChristianPF.com and thought I’d share it here as well. 

For some reason I get this question a lot, so I thought I’d provide a little clarification on IRA withdrawal rules.

Individual Retirement Arrangements or IRAs were designed to provide an opportunity for folks to save for retirement on a pre-tax, tax-deferred basis.  In other words, the money grows without having to pay any taxes on the gains.

Of course, with an IRA you have to pay the Piper at some point in time.  That means when you get into retirement and start your IRA withdrawals, you’ll have to pay taxes.  This can create a “tax-time bomb” in retirement, but I won’t get into that here.

The short answer to when you can take your IRA withdrawals is – any time! 

People are often shocked by that answer, but it’s true.  You can access your money in an IRA any time you’d like, but you just better be aware of the tax and penalty ramifications.

If you take your IRA withdrawal after age 59 1/2 you won’t have to worry about any penalties, just the taxes.  There are some exceptions to taking money out before age 59 1/2, so let’s take a look:

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Your IRA Withdrawal Prior to Age 59 1/2

The general rule is that if you take an IRA withdrawal before 59 1/2 the IRS whacks you with a 10% penalty.  So, ideally you need to wait until you reach that age.

As with most IRS rules, there are some exceptions:

IRS publication 590 lists these exceptions to the 10% penalty:

• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
• The distributions are not more than the cost of your medical insurance
• You are disabled.
• You are the beneficiary of a deceased IRA owner.
• You are receiving distributions in the form of an annuity. 
• The distributions are not more than your qualified higher education expenses.
• You use the distributions to buy, build, or rebuild a frist home.
• The distribution is due to an IRS levy of the qualified plan.
• The distribution is a qualified reservist distribution

These exceptions have some qualifiers on them so it’s important to look at the IRS publication to make sure you fit into one of these categories before you take the money out.

For example, the exception that says you can take the money in the form of annuity – basically what the IRS means here is that you must take “substantially equal period payments”  – in other words a set amount per year for either a) five years or b) til 59 1/2, whichever is longer.

Also, be aware that these exceptions are for the 10% premature distribution penalty NOT taxes!  You still have to pay taxes on any withdrawal you take out.

Your IRA Withdrawal After Age 59 1/2

Reaching the magic age of 59 1/2 is one retirement milestone you should look forward to.

Once you reach this age, you can begin to take your IRA distributions penalty free!  At this point you can take out as much as you want, whenever you want. 

Again, there is no escaping the taxes (unless of course you open a Roth IRA) so just be aware that every dollar you pull out will be as if you earned that money for the year – it counts as ordinary income.

By the way, you literally must reach age 59 1/2 – not 59, 5 months and 15 days. You can take the money any time on the day you turn 59 1/2 or after.

Just because you turned 59 1/2 doesn’t mean you have to take the money out though.  You may not want to.  If you’ve done a good job establishing other sources of income, you may decide to wait.

Your IRA Withdrawal at Age 70 1/2

If you do decide to wait however, you won’t be able to leave that money in your IRA forever. 

At age 70 1/2 you will be required to take a minimum distribution ( also known as RMD, which uses a formula set up by the IRS to determine the amount) and pay taxes on those withdrawals. 

But, what if you don’t need the money and you’d rather wait?  That’s fine, but just know that good ol’ Uncle Sam will uppercut you with a 50% penalty on the amount that should’ve been distributed along with the normal taxes due.

They want to make sure they get their tax revenue some how. So be aware that sooner or later you HAVE to take money out of your IRA. 

So remember, you can always access your IRA, but you need to know the right rules and regulations to determine when a distribution will be right for you.

According to Wikipedia, Baby Boomers are those who are born between 1946-1964 – meaning they range in age from 46-64 years of age.

Retirement is certainly on their minds and they are concerned about how much they need for retirement savings.

As baby boomers approach the magical age, there are some pretty important things to keep in mind about saving for retirement.

Let’s take a look at five things to keep in mind about retirement savings:

Retirement Savings Is Up to You!

Ok, so this is no breakthrough – I’m not pretending to discover a cure for cancer by any means, but this point needs to be stressed over and over again.

Years ago, you could work for an employer for 30 or 40 years, retire with a nice pension provided by the company and collect your social security and be pretty comfortable in retirement.

Not anymore!  Companies are dumping their pensions left and right, Social Security will need a massive overhaul to avoid going defunct – so what does that mean for you?

You are on your own for retirement savings – and that’s OK.

When Can You Access Your Retirement Savings?

This is something that all baby boomers should get really familiar with.  Accessing your retirement savings is generally what’s going to provide you an income in retirement, unless you have other business income etc.

Most people recognize 59 1/2 as the magical age to access your retirement savings, but get familiar with the rules surrounding your withdrawals.  Here’s a couple of them to remember:

• You can access your IRA at any time, but be aware of the penalties.
• You can withdraw from your 401k savings prior to 59 1/2 without penalty if you are at least age 55 when you retire.
• You can take out Roth IRA contributions at any point in time, but the earnings must left alone until age 59 1/2.

What is Your Retirement Savings Number?

A few years back, Lee Eisenberg wrote a book called The Number, where he talks about what you’ll need for the rest of your life and what it will cost.  It’s an entertaining and informative look at what the rest of your life will look like.

You should be asking questions like, “Is a million dollars the magical number?”  Many people think they need much, much more than that, but is that right?

In light of this, you’ll need a good retirement calculator and you’ll want to sit down with your loved one and figure out your income versus expenses and determine how much retirement savings you need?

How Will You Diversify Your Retirement Income?

This is one that boomers probably have in the back of their minds, but some careful consideration should be done.

Will you have a pension, social security, 401k savings, IRA money, or annuities to help supplement your retirement income?

What about starting a business or turning a hobby into an opportunity to make some side money?  Have you considered other ways to make money and diversify your income in retirement?  You probably should.

Once again, retirement savings is up to you, therefore you need to be prepared and should have multiple lines in the water so that you’re not relying on the fish always biting from one particular source.

How Will You Diversify Your Retirement Savings From a Tax Standpoint?

Tax diversification is extremely important and is something that everyone should get familiar with and take a look at for their own situation.

In essence, tax diversification takes a look at the tax status of investing into three different vehicles.  You have tax-deferred, taxed-as-you-go (or non-qualified) and tax-free.

No one investment vehicle is right in every circumstance, but I think it’s very important to spread savings out among these three types of accounts because the greater the flexibility you have for accessing retirement savings, the greater the options you have for lowering your tax burden in retirement.  Plus, after reading why tax-deferral may not be all that it’s cracked up to be you might agree with me.

If taxes are high in some years, you have other money to withdraw from besides your 401k.  If tax rates are low, then why not pull money out of your IRA and consider a Roth conversion etc.

How About You?

Readers, what are some other things to consider for retirement?

 401ks have been around for years and have been an ever increasingly popular way to save money for retirement. 

More and more businesses run some type of deferred contribution plan and they are a great way to attract and retain key employees.

401ks are great from an employee standpoint because they are relatively quick to sign up for, fairly easy to pick funds in and once the initial set up has been done, your contributions are taken out of your paycheck automatically. 

It’s an easy way to save.

But, did you know that by contributing to your 401k you could be creating a giant time bomb?  Here’s a look at why:

What is a tax deferred account?

 A tax deferred account is simply an account that allows you to put in pre-tax contributions for retirement.  The money inside grows without having to pay taxes every single year – they are deferred until some time down the road.

Things like 401ks and IRAs and for small business owners – Simple IRAs and SEP IRAs are examples of tax-deferred accounts.

What is a retirement time bomb?

A retirement time bomb is when you put all or most of your retirement savings into these tax-defferred accounts like 401ks and Traditional IRAs.

When you get into retirement and start withdrawing your money, you have to pay taxes on every single dollar you pull out!

At what rate?

It depends, but the money you pull out is taxed as ordinary income, which means for those of you who think your taxes will go down in retirement – you might be in for a big surprise when all of that money is taxed as though you earned it!

For those of you who have socked away a lot of money into tax-deferred accounts for retirement – these have become a ticking time bomb waiting to explode! 

And Uncle Sam is licking his chops!

What should you do about it?

1. Figure out how much you need for retirement
2. Re-evaluate your accounts – determine if you are properly balanced from a tax perspective
3. Consider other options – look at accounts like Roth IRAs to detemine if it’s right for you.
4. Make a plan to diversify from a tax perspective – figure out how muchyou can get into a tax-free bucket and start shifting money either through contributions or Roth Conversions.

What about you?

Are you holding a retirement time bomb?  What have you done to diversify yourself from a tax standpoint?