Ask Liz Weston

Get smart with your money

Retirement

Q&A: IRA investments and minimum distributions

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Dear Liz: I have an IRA invested in stocks, bonds and Treasury bonds. I’m 60 now and am hoping to retire in a few years. When I stop work and start pulling money from my IRA, can I withdraw a security or Treasury bond? Or must I first sell the security or Treasury bond, and then withdraw cash? I ask because I’ve recently purchased 30-year Treasury bonds (as well as Treasury Inflation-Protected Securities, or TIPS). Once required minimum distributions kick in, I’d prefer not to sell a Treasury bond or TIP, if I don’t have to.

Answer: First, you should know that you have several years before your first required minimum distributions will be due. Because you were born after 1959, the age at which you’re required to start taking minimum distributions from most retirement accounts is 75. (The RMD age used to be 72, but it’s currently 73 for those born between 1951 and 1959 and 75 for those born in 1960 and later.) You can take penalty-free distributions from retirement accounts as early as age 59½, but the increase in RMD age can be advantageous for good savers who don’t need the money and want to allow their tax-deferred retirement funds to continue growing.

Most people take their required distributions in cash, but you’re allowed to take them “in kind” — in other words, you can transfer your stocks and other investments from your retirement account to a taxable brokerage account.

There’s no tax advantage to in-kind transfers and they can be tricky because the value of investments can change day to day, unlike cash, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. If the investments’ value on the day of distribution is less than your RMD, you’ll need to make up the difference in cash to avoid penalties.

Q&A: Pensions and Social Security benefits

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Dear Liz: I am a teacher getting ready to retire. I have been collecting a spousal benefit from my husband’s Social Security. My understanding is that once I start collecting my pension, I will be subject to the windfall elimination provision. Is there a way to continue to collect against my husband’s Social Security, which is greater than my own Social Security benefit?

Answer: Because you will be receiving a pension from a job that didn’t pay into Social Security, you’re subject to two provisions: the windfall elimination provision, which can reduce but not eliminate your own Social Security benefit, and the government pension offset, which can reduce or eliminate any spousal or survivor benefit.

If the GPO wipes out your spousal benefit, you may still get at least a portion of your own benefit. Claiming strategy sites such as Maximize My Social Security and Social Security Solutions could help you estimate the effect of those provisions.

Q&A: Getting a second financial opinion

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Dear Liz: My wife and I recently retired. Our investments are managed by a certified financial planner. Our nest egg has not shown much growth over the last several years. We think it is time for another professional advisor to analyze our portfolio and see if we are really heading in the right direction. Is this out of the ordinary to seek more advice and how would we go about it, without offending our current planner?

Answer: You can certainly consult another advisor, but consider talking to your own first.

Start by asking the certified financial planner how your portfolio has performed relative to an appropriate benchmark over the last five years. The planner should be able to explain what benchmark was chosen and why. A portfolio that invests heavily in bonds, for example, will have a different benchmark than one that invests mostly in stocks.

If your portfolio is lagging behind this benchmark, then ask the planner what changes can be made to improve your investment performance. Switching from actively managed investments to passive ones, such as index mutual funds or index exchange traded funds, could save on costs and improve performance because few actively managed investments manage to beat the market.

If your portfolio is performing appropriately relative to its benchmark, then discuss whether you want to take on more risk for better returns. Many planners recommend retirees have a substantial portion of their portfolios in stocks for inflation-beating growth.

Your certified financial planner should be open to this discussion and ready to course correct if necessary. If you find that’s not the case, then it may be time not just for a second opinion but for a new advisor.

Q&A: Care planning for ‘solo agers’

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Dear Liz: My wife and I don’t have children or any relatives nearby. So far, we’re healthy and completely independent, but that won’t always be the case. Do you know of any fee-based agencies or organizations that might provide assistance with such things as arranging a caregiver if needed, or helping our executor clean out our home?

Answer: A geriatric care manager can help assess your needs as you age and come up with a plan to meet them, including arranging for caregivers or finding an assisted living facility. You can get referrals from the Aging Life Care Assn.

An estate liquidator or a professional organizer can help with clearing your home. You (or your executor) can get referrals from the American Society of Estate Liquidators and from the National Assn. of Productivity & Organizing Professionals.

Also consider building a community of friends and neighbors who can help you as you age, and vice versa. You might be able to get some help from the nonprofit Village to Village Network, which is a group of community-based membership organizations helping people to age in place. The books “Who Will Take Care of Me When I’m Old?” by Joy Loverde and “Essential Retirement Planning for Solo Agers” by Sara Zeff Geber would be helpful reading.

Q&A: How to plan retirement withdrawals

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Dear Liz: I am 65 and plan on working until 70 to get the maximum Social Security. I have a 401(k) worth about $290,000. How do I determine the maximum monthly payout I should take while being somewhat certain it will last until I’m 90? Our family has a history of longevity, typically living into the early 90s.

Answer: You may have heard of the “4% rule,” a guideline that suggests an initial withdrawal rate of 4%, with the amount adjusted each year afterward by the inflation rate. The rule stems from research by certified financial planner Bill Bengen, who in a 1994 research paper used historic market returns for a portfolio consisting of 50% stocks and 50% bonds to determine the maximum safe withdrawal rate for a 30-year retirement.

Some researchers believe a sustainable withdrawal rate should start closer to 3%, and others suggest higher rates if the account owner is willing to cut back spending in bad years.

However, most retirement accounts, including 401(k)s, are subject to required minimum distributions. These will start after you turn 73. (For people born in 1960 or later, such distributions will be required starting at age 75.)

The exact amount you must withdraw depends on your account balance at the end of the previous year as well as your age and life expectancy. The percentages you must withdraw could be slightly less or considerably more than 4% of your original balance.

Q&A: The thought of ending up old and alone can be terrifying. It doesn’t have to be that way

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Dear Liz: My wife and I have no children to take care of us in our old age, and I am scared to death regarding what will happen to the surviving spouse when one of us dies or we become incapacitated. We are 69 and 67 respectively and I think a lot of “boomers” are facing this issue. Any thoughts?

Answer: Consider getting a copy of the book “Essential Retirement Planning for Solo Agers: A Retirement and Aging Roadmap for Single and Childless Adults” by certified retirement coach Sara Zeff Geber. The NextAvenue site also has a wealth of information on how to prepare for aging and incapacity if you don’t have kids or don’t have ones you can rely on.

Geber provides far too much valuable information to summarize here, but one important strategy is to create a strong social network. Not only can this combat social isolation and loneliness — which are as dangerous to your health as smoking — but these folks can help look out for you and vice versa.

If your social circle is small or you’re out of the habit of making new friends, consider activities that put you in contact with others such as volunteering, taking classes or joining exercise groups. Also check out the Village to Village Network, a nonprofit that helps people age in place by encouraging groups of neighbors to help one another with rides, services and activities.

Living in close proximity to others and in areas with robust social services also can make a huge difference for solo agers. Another option, if you have the means, is to consider a continuing care retirement community that allows independent living to start, with assisted living and sometimes nursing home care as needed.

Every adult needs an advance healthcare directive, such as the free ones at Prepare for Your Care. These documents allow someone you trust to make health decisions if you should become incapacitated. It’s OK to name your spouse, but you also should have at least one and preferably two or more backups. Filling one out can help you think deeply about the people currently in your life you can trust with this task, and may encourage you to deepen those ranks if they’ve gotten a little thin.