Golden Year - Retirement Plan

The good news is that we are all living longer; the bad news is that we are all living longer. To make your money last as long as you do, you will need to have retirement plan.

Go back and review your cash flow worksheet. How much is it going to take to maintain your current lifestyle? Have you accumulated enough assets to retire? If not, you may need to postpone retirement. There is a big gap between wanting to and being able to retire.

For example, if you are 60 and postpone retirement to age 66, you will receive a larger Social Security check, you will have six more years to save and invest, and you will have fewer years in retirement to provide for.

Let's look at what an extra six years can do to a portfolio. If you had $50,000 invested and you were able to get a 9 percent return, it would grow to $85,000. And if you were able to save and invest $4,000 each year as well, that would add another $30,000 to your nest egg, which would now be $115,000.

Of course, if you run out of money, you can always go and live with one of the kids. Gotcha, didn't I? None us wants to do that, especially if we live our kids. And if you don't love them, to live with them and make them miserable.

Getting Your Money Out

So how do you get your money out of the retirement plans? You know you have to wait until at least age 59 1/2 with most of these plans; otherwise you will be required to pay a 10 percent penalty. That's what I've been telling you. But do you really understand what that means?

Getting at your IRA money before you reach 59 1/2 is possible. If you want to retire early and most of your money is in your IRA account, there is a way around the 10 percent penalty but not the taxes. You can use the rule of 72, which allows you to take the money in substantial equal periodic payments. Under this rule, you can avoid the penalty by taking withdrawals in substantially equal payments for your life expectancy (or joint life with owner and beneficiary) at least annually (you would use IRS tables). Once you have made this election, there is no going  back for five years or until you reach age 59 1/2., whichever is sooner.

This method can also be used with 403(b) plans. With a 401(k) plan, the rules are different. If you retire and leave your job at age 55 or older, you are allowed access to your 401(k) account without the 10 percent penalty, but you still owe the taxes.