Published April 2006

Retiring soon? Time
to review financial strategies

In last month’s column, we talked about the necessity of taking a “big picture” approach to your financial situation. By looking at your needs at different stages of your life, you can develop a strategy containing elements that work together to help you achieve your goals.

Last month, we discussed the importance of building financial assets and protecting your resources. Now, let’s consider two issues that will be important to you during your retirement years: creating an income stream and transferring your wealth.

Creating a retirement income stream
During your retirement years, you will need a significant percentage of your pre-retirement earnings to live on, but the actual amount will depend on your lifestyle. An investment professional can help you determine the annual income level that you will need.

Once you know how much income you’ll require, you’ll need to look at all available sources: your savings and investments, your retirement plans (401(k), IRA) and your Social Security. In determining how much to take from each source, and when, you’ll have to consider some different factors.

For example, it might be wise to delay making withdrawals from your tax-advantaged retirement accounts for as long as possible, so that these funds can continue to grow tax-deferred. However, you must start taking required minimum distributions (RMDs) from your traditional IRA and 401(k) when you turn 70-1/2. (Roth IRAs don’t require you to begin taking RMDs at 70-1/2, or at any age.) You can withdraw more than the RMD, but not less.

As for Social Security, you can start receiving monthly checks at age 62, but your payments will be larger if you wait until your full retirement age, which can be between 65 to 67. For every year past your normal retirement age that you delay collecting benefits, you’ll get “bonus’’ payments, but once you reach 70, you’ll have earned the largest monthly payment you’re going to get.

Transferring your wealth
To complete your financial picture, you need to have your plans in place to transfer your wealth in a way that provides maximum benefits to your family and to any charitable organizations you wish to support.

To achieve these wealth-transfer goals, you will probably need to work with a team of experts, including your investment professional, your tax adviser and an attorney specializing in estate planning. You will need to create the appropriate legal documents, which may include the following:

  • Will — If you don’t have a will, your heirs may face costly delays before receiving any assets. Furthermore, your wishes may never be fully honored, because state law dictates how your assets will be divided.
  • Living trust — A living trust can give you more precise control over how — and when — you want your assets distributed.
  • Charitable remainder trust — By establishing a charitable remainder trust, you can support a charitable group and receive financial and tax benefits.
  • Durable general power of attorney — This document allows you to appoint another person to conduct your business affairs if you are physically or mentally unable to manage them yourself.

Start planning early
It will take some effort to create an appropriate retirement income stream and to transfer your wealth in the way that you envision. So, start thinking about these matters soon — the more time you put into your plans, the better the results are likely to be.

Eric Cumley, CFP, is an investment representative with Edward Jones in south Everett. He can be reached at 425-353-2322. Edward Jones is an NYSE-member investment firm with more than 9,000 offices nationwide.

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© 2006 The Daily Herald Co., Everett, WA