retirement planning

Safer ways to raid your retirement, if you have to

June 26, 2023 By Liz Weston

Raiding your retirement accounts can be expensive. Withdrawing money before age 59½ typically triggers income taxes, a 10% federal penalty and — worst of all — the loss of future tax-deferred compounded returns. A 30-year-old who withdraws $1,000 from an individual retirement account or 401(k) could lose more than $11,000 in future retirement money, assuming 7% average annual returns.

In the past, there were a few ways you could avoid the penalty. Congress recently added several more, and some of those exceptions allow you to repay the money within three years. That would allow you to get a refund of the taxes you paid and — best of all — allow the money to start growing again, tax deferred, for your future.

You’re still better off leaving retirement funds alone for retirement, says Erin Itkoe, director of financial planning at Tarbox Family Office, a wealth management firm in Scottsdale, Arizona. If you can’t, though, you could at least limit the damage from taking the money out early, she says.

In my latest for the Washington Post, learn safer ways to raid your retirement, if you have to.

3 tasks for new retirees that will pay off later

March 29, 2022 By Liz Weston

After a working lifetime of alarm clocks and meetings, you might be looking forward to a lot more unstructured time once you retire. But taking care of one more to-do list early on can set you up for a better retirement.

The following assumes you’ve already done some basic financial planning. Ideally, before you retire, you’ll create a budget, decide when to claim Social Security, settle on a sustainable withdrawal rate from your retirement funds and figure out how you’ll cover health care expenses. If any of those topics are still a mystery, consider talking to a fee-only financial advisor. If money’s tight, you may qualify for free or low cost consultations through the Foundation for Financial Planning, National Association of Personal Financial Advisors or the Association for Financial Counseling & Planning Education, among other organizations.

Even longtime do-it-yourselfers should consider getting expert retirement planning advice, says Catherine Azeles, a certified financial planner and investment consultant in Harrisburg, Pennsylvania. Although your days may be simpler without workplace demands, your finances often become more complex.

In my latest for the Associated Press, learn 3 tasks for new retirees that will pay off later.

How the pandemic has shaken up retirement

April 21, 2021 By Liz Weston

Pandemic-related job losses forced many older Americans out of the workplace i n the past year, perhaps permanently. But the COVID-19 crisis also seems to have delayed some retirements.

Remote work eliminated commutes and often allowed more flexible schedules with fewer interruptions. At the same time, the pandemic restricted many traditional retirement activities, including travel and visits with family. While some employed older workers look forward to retiring when restrictions ease, others say teleworking has made staying on the job more tenable.

in my latest for the Associated Press, a look at how the pandemic has shaken up retirement in both good and bad ways for Americans.

The upsides to thinking about when you will die

November 3, 2020 By Liz Weston

Social Security’s life expectancy calculator predicts I’ll live to about 86. An insurance company’s version says I should expect to die at 98. A longevity calculator created by actuaries demurs, putting the odds at only 32% that I’ll make it to 95.

Eventually, I’ll find out which life expectancy calculator was most accurate. In the meantime, the different results help illustrate one of the most important and difficult calculations in retirement planning: figuring out when it will end.

In my latest for the Associated Press, why life expectancy matters.

Q&A: Your retirement plans require lots of decisions. Get help

January 13, 2020 By Liz Weston

Dear Liz: We are a working couple in our late 50s. We live a comfortable lifestyle, have no mortgage, no debt, and we enjoy our careers. Through luck and diligence we have built a sizable net worth of $4.5 million (37% equity in our primary residence, 37% IRAs, 25% taxable equities). The investments are being managed by a family member. We plan to wait as long as possible before taking Social Security but would like to quit working within the next five years. As we look to retirement, we are undecided about where we’d like to live. We could stay in our current large house in Los Angeles, or we could move to a just-as-expensive nearby beach town and opt for a much smaller condominium.

I’d like to purchase the condo before retirement (paying cash, as we are debt-averse at this stage of our lives). This plan could improve our current lifestyle by providing a weekend retreat. Once retired, we might then have the luxury of deciding which home to keep and which to sell.

However, my partner is rightfully concerned about having too much exposure to real estate and missing out on the portfolio growth we’ve enjoyed by staying in the stock market as long as we have. What should we do?

Answer: It’s not a bad idea to test drive your planned retirement community before you give up your current home. But your partner is right to be concerned about having too much money tied up in real estate. Most people need to keep a substantial portion of their portfolios in stocks even in retirement. Plus, any money you pull from your investments could incur a rather substantial tax bill.

One solution could be to purchase the condo using a mortgage. Interest rates are quite low, and it sounds like your finances are in good-enough shape to pass the extra scrutiny lenders often give second-home purchases. If you eventually decide to sell your current home, the proceeds could be used to pay off the loan.

This would be a good time to hire a comprehensive financial planner who can help you figure out how this next phase of your life will work. The planner also could help you with all the other retirement issues you’ll face, such as picking a Medicare supplement plan, managing required minimum distributions and paying for long-term care.

You can get referrals to fee-only planners from a number of organizations, including the National Assn. of Personal Financial Advisors, the Garrett Planning Network, the XY Planning Network and the Alliance of Comprehensive Planners.

Tuesday’s need-to-know money news

June 4, 2019 By Liz Weston

Today’s top story: What you need to know about working in retirement. Also in the news: 5 reasons to keep renting, how one couple paid off $33K of debt in 18 months, and how to opt of out Chase’s new binding arbitration rule.

What You Need to Know About Working in Retirement
Things to consider as you make your retirement plans.

5 reasons to keep renting
The flexibilities and amenities.

How I Ditched Debt: ‘It Made Our Marriage So Strong’
One couple’s story.

How to Opt Out of Chase’s New ‘Binding Arbitration’ Rule
You have until August 7th.