MICHAEL LOFTUS
- Sep 20, 2018
- 1 min read

Should You Focus on Goals or Performance In Retirement Planning

Updated: Sep 24, 2018

When planning for #retirement, it's important to know the difference between Goal-based planning and Performance-based planning.

#retirement, #investing, #heretohelp, #goals, #money,

MICHAEL LOFTUS
- Apr 10, 2018
- 3 min read

Things to Consider if You Plan to Retire Before 60

Financially speaking, what moves might you want to make?

By choice or by chance, some people wrap up their careers before turning 60. If you sense this will prove true for you, what could you do to potentially make your #retirement transition easier? As a start, you may need to withdraw your retirement funds strategically.

The I.R.S. wants you to leave your retirement accounts alone until your sixties. To encourage this, it assesses a 10% early withdrawal penalty for most #savers who take #money out of traditional retirement accounts prior to certain ages. For a traditional #IRA, the penalty applies if you withdraw funds prior to age 59½; for a workplace retirement plan, the penalty may apply as early as age 55.1

You may be able to avoid that 10% penalty by planning 72(t) distributions. Under a provision in the Internal Revenue Code, you can withdraw funds from a traditional IRA prior to age 59½ in the form of substantially equal periodic payments (SEPPs) over the course of your lifetime. The schedule of payments must last for at least five years or until you reach age 59½, whichever period is longer. Once the schedule of periodic payments is established, it cannot be revised – if the payments are not taken according to schedule, you will be hit with the 10% early withdrawal penalty. All 72(t) distributions represent taxable income.1,2

You can also take 72(t) distributions, in the form of SEPPs, from many #employee retirement plans. To do this, you must “separate from service” with your #employer, i.e., leave or lose your job. Should that happen in the year you turn 55 (or in subsequent years), you can take a lump sum out of the plan without any early withdrawal penalty. If you quit or leave before age 55, you may arrange SEPPs over your lifetime or prior to age 59½, as per the above paragraph.3

If you have a #Roth IRA or Roth employer-sponsored retirement account, things get easier. You can withdraw your contributions to these accounts at any time without incurring taxes or tax penalties. At age 59½ or older, both account contributions and account earnings can be distributed tax free and penalty free if you have held the account for at least five years.3

In addition to your retirement funds, you will need health coverage. A decade may pass before you are eligible for #Medicare, so what are your options past 18 months of COBRA?

The #health #insurance exchanges may be your best resource to find coverage at a decent cost. In fact, you may qualify for health insurance subsidies because your income will drop when you leave work. Retirement (and the loss of employer health coverage) counts as a “qualifying life event,” giving you a special 60-day enrollment window outside the usual November-December enrollment period.4

In the best-case scenario, your employer keeps you on its group plan for a few years after your retirement. (If you have paid for your own health insurance for years, you can keep doing so.)

You may appreciate having a health savings account.

Contributions to #HSAs are tax deductible, and the assets within them grow tax-free. HSAs are sometimes called “backdoor IRAs” because you can use the money within them for any reason without penalty once you turn 65, not just for qualified health care expenses. (All HSA withdrawals are taxable.)5

Think about a conservative retirement income withdrawal rate. The standard 4% baseline may be too optimistic; 3% or 3.5% may be more realistic if you feel you will be retired for 30 years or longer.

Should you claim #Social #Security at 62? You can, as long as you are prepared for the trade-off: the probability of proportionately smaller monthly benefits over the rest of your life compared with larger monthly benefits you could receive by claiming later.

Any early retirement decision should prompt a consultation with a qualified #financial or tax #professional. This is a critical financial juncture in your life, and whether you find yourself at it by choice or by chance, your decisions could have lifelong impact.

YES, I WOULD LIKE TO LEARN MORE!

Citations.

1 - cnbc.com/2017/07/05/three-retirement-savings-strategies-to-use-if-you-plan-to-retire-early.html [7/5/17]

2 - forbes.com/sites/greatspeculations/2017/08/28/the-basics-of-taking-hardship-distributions-from-self-directed-iras/ [8/28/17]

3 - schwab.com/resource-center/insights/content/thinking-of-taking-an-early-401-k-withdrawal-think-again [8/2/17]

4 - investopedia.com/articles/personal-finance/080516/top-3-health-insurance-options-if-you-retire-early.asp [9/9/17]

5 - investopedia.com/articles/retirement/060116/early-retirement-strategies-make-your-wealth-last.asp [8/23/17]

MICHAEL LOFTUS
- Apr 9, 2018
- 3 min read

Why You Want a Retirement Plan in Writing

Setting a strategy down may help you define just what you need to do.

Many people save and invest vaguely for the future. They know they need to accumulate #money for #retirement, but when it comes to how much they will need or how they will do it, they are not quite sure. They will “wing it,” hope for the best, and see how it goes. How do they know they are really contributing enough to their retirement #accounts? Would they feel less anxious about the #future if they had a written plan?

Make no mistake, a written retirement plan sharpens your focus. It can refine dreams into goals and express a #strategy to pursue them. According to a Charles Schwab study, just 24% of Americans plan their financial futures according to a written strategy. Here is why you should join their ranks, if you are not yet among them.1,2

You can figure out the “when” of retirement planning. When do you think you will #retire and start drawing #income from your taxable and tax-advantaged accounts? At what age do you anticipate you will start to collect #Social #Security? How long do you think you will live? No, you cannot precisely know the answers to these questions at this point – but you can make reasonable assumptions. Your assumptions may be altered, it is true – but a good retirement plan is an evolving document, one that can be revised with changing times.

You can set a target monthly or annual savings rate. Once you have considered some of the “whens,” you can move on to “how.” Assuming a conservative rate of return on your invested assets, you can specify how much to defer into retirement accounts.

You can decide on a risk tolerance and an investment mix that agrees with it. Ultimately, you will #invest in a way that a) makes sense for your objectives and b) makes you comfortable. The investment mix that you decide on today may not be the one you will favor ten years from now or even three years from now. Regular #portfolio reviews should complement the stated #investment approach.

You can think about ways to get more retirement income instead of less. #Tax reduction should be part of your retirement strategy. Think about the possibility of part of your Social Security income being taxed. Think about tax on your Required Minimum Distributions (RMDs) from your IRAs and #employee retirement plan. What could you do to manage, or even minimize, the income and capital gains taxes ahead of you?

You can tackle the medical expense question. That is, how will you fund the medical care that you will inevitably need to greater or lesser degree someday? Should you assign part of your savings to a special account or form of #insurance for that purpose? Retiring before 65 may mean paying for some private health insurance in the years before #Medicare eligibility.

You can think about your legacy. While a retirement plan should not be equated with an #estate plan, the very fact of planning for your later years does make you think about some things: where you want your money to go when you are gone; your endgame for your company or professional practice; whether part of your accumulated wealth should go to causes or charities.

A written plan promotes confidence and a degree of control. A 2017 Wells Fargo/Gallup survey determined that those with written retirement plans were nearly twice as confident of having sufficient retirement income in the future, compared to those with no written plan.3

If you lack a written retirement plan, talk to the financial professional you know and trust about one. Writing it all down may make a difference in planning for your second act.