required minimum distributions

3 Financial Penalties Every Retiree Should Avoid

Matt Bell — Thu, 22 Mar 2018 09:30:19 +0000

Managing money effectively can be challenging enough, but paying unnecessary financial fines only makes it tougher — especially in retirement. Here are three hefty penalties many older people may face, and how to avoid them.

1. Failing to take RMDs

If you are age 70½ or older, have money in a tax-deferred retirement account, and fail to take your required minimum distributions (RMDs), you will owe a penalty equal to half the required-but-not-taken amount. You'll also have to catch up on the amount you were supposed to take and pay tax on that.

The potential penalty pertains to traditional IRAs and 401(k)s — any retirement account that enabled you to make tax-deductible contributions and defer taxes on investment gains. It does not pertain to Roth accounts.

You see, Uncle Sam wants his money, and age 70½ is as long as he's willing to wait. Even if you don't need the money, you have to start drawing it out of your account(s) and paying taxes on it or face the penalty.

To determine the amount of your RMD for a particular year, take the account balance at the end of the prior year and divide it by the distribution period from the IRS's Uniform Lifetime Table found in these IRS work sheets.

For the year you turn 70½, your RMD must be taken by April 1 of the following year. For all subsequent years, it must be taken by the end of the year. If you have multiple accounts, you must calculate your RMD for each one. For IRAs, the total distribution amount can be taken from just one of the accounts or spread out across all of them, and it can be taken as a lump sum or little by little throughout the year. RMDs from employer-sponsored retirement accounts or inherited IRAs must be taken from their respective accounts.

2. Claiming Social Security too early

If you claim Social Security benefits when you are first eligible at age 62, you will lock yourself in to the lowest possible monthly payments. For those born in 1960 or later, it will be about 30 percent less than if you wait until your full retirement age of 67.

The Social Security Administration's full retirement age chart has the details. Even better, check the actual benefit amounts you'll be eligible for at different ages by creating your own account on the SSA's site.

Some argue that by collecting even a reduced benefit beginning at age 62, that five-year head start is more beneficial than waiting. And it's true that there are some people for whom it may make sense to claim as early as possible. However, with longer life spans, waiting at least until full retirement age — and arguably, even waiting until the maximum age of 70 — will prove most beneficial for most people.

Plus, consider a married couple's situation in which the man is the higher earner. Because women tend to live longer than men, and because widows are eligible to replace their monthly benefit with their husband's upon his death, that's one more reason why a higher-earning husband may want to wait until he's eligible for his highest monthly benefit. (See also: 3 Reasons to Claim Social Security Before Your Retirement Age)

3. Missing the Medicare sign-up deadline

Medicare eligibility begins at age 65. If you claim Social Security benefits at least four months before your 65th birthday, you'll be automatically enrolled in Medicare at the appropriate time. However, if you hold off on Social Security until you're older than 65 but you want Medicare coverage, you'll have to sign-up for it within a seven-month window that begins three months before your 65th birthday month. Otherwise, you'll face two possible penalties — one for Medicare Part A (hospital insurance) and one for Part B (medical insurance).

Most people qualify for premium-free Part A coverage based on how much they or their spouse contributed to Medicare during their careers. However, if you don't qualify for free Part A coverage and don't sign up on time, opting for it later will cost you in the form of premiums that are 10 percent more expensive than they would have been otherwise.

Those higher premiums will be in effect for twice the number of years that you've been eligible for coverage. In other words, if you sign up at age 67 (two years past the age when you were first eligible), you'll owe the higher premiums for four years. Bottom line on Part A? Most people should sign up when they are first eligible.

The penalty for missing the sign-up window for Part B is even more significant — 10 percent higher premiums for as long as you have coverage. Plus, your earliest opportunity to sign up will be the next January-through-March period, with the policy going into effect on July 1, so you may experience a coverage gap.

Of course, a prime reason why you might want to opt out of Medicare Part B is that you're still working, have health insurance, and don't want to pay the additional premium.

According to Medicare, if your employer has less than 20 employees, you should sign up for Medicare Parts A and B when you are first eligible. It will become your primary health insurance, with any other coverage you have only paying expenses not covered by Medicare.

If your employer has 20 or more employees and you are covered by a group insurance plan, you don't have to sign up for Medicare Part B (if you do, it will become your secondary insurance). However, when you leave that employer, you'll have to sign up within eight months or face the penalty mentioned earlier. (See also: How to Make Sense of the Different Parts of Medicare)

Clearly, as you get older, certain birthdays aren't just causes for celebration. They're reminders to make careful decisions about your tax-deferred retirement accounts, Social Security, and Medicare.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

15+ Important Financial Dates to Mark on Your Calendar

Damian Davila — Mon, 29 Jan 2018 10:00:06 +0000

Improving your finances is not a sprint, it's a marathon. To help you succeed in 2018, here is an at-a-glance finance calendar with key dates to effectively plan your money moves this year. You got this!

January 1

This is the very first day to fund traditional and Roth IRAs and Simplified Employee Pension Plan (SEP) IRAs for the current year.
If you don't enroll in Medicare during the initial enrollment period around your 65th birthday, you can sign up starting today through March 31 to start coverage on July 1. A late enrollment fee may apply.

January 16

This is the due date for quarterly estimated taxes for the fourth quarter of 2017 (Sept. 1–Dec. 31). Use the 2017 IRS Form 1040 ES to pay your estimated tax.

January 29

The IRS starts accepting tax returns. (See also: 8 Reasons You Should File Your Taxes as Soon as Possible)

March 31

Many flexible spending account (FSA) plans with a use-it-or-lose-it rollover rule set today as the deadline to submit claims for eligible medical expenses completed by December 31 of the previous year.
Last day to enroll in Medicare to start coverage on July 1. A late enrollment fee may apply.

April 1

Following the calendar year in which you turn 70½, this is the date you must start taking required minimum distributions (RMDs) from your traditional IRA, 401(k), 403(b), or other applicable retirement savings plans. (See also: What Every Retirement Saver Should Know About Required Minimum Distributions)

April 15

Deadline to contribute to a Coverdell Education Savings Account (ESA).

April 17

Tax Day 2018 falls two days later than usual because April 15 falls on a Sunday, and Emancipation Day falls on April 16, giving IRS workers a holiday.
Deadline to file for an extension on you tax return. (Note: There is an automatic two-month extension for taxpayers living abroad).
Last day to fund last year's traditional or Roth IRAs.
Deadline to fund a health savings account (HSA) for the prior year. (See also: How an HSA Could Help Your Retirement)

April 18

Deadline to submit an estimated tax payment for next year's taxes using first payment voucher from 2018's Form 1040-ES.

June 15

Make an estimated tax payment for tax year 2018 using second payment voucher from Form 1040-ES.
Two-month filing extension deadline for federal taxes. (See also: Filed an Extension? Here's What You Need to Know)

June 30

To receive federal student aid for the 2017–2018 school year, submit your FAFSA application by June 30, 2018.

September 15

Make an estimated tax payment for tax year 2018 using third payment voucher from Form 1040-ES.

Sometime between October 1 and November 1

Your employer will start announcing the upcoming open enrollment period to choose your workplace benefits for the next year.

October 1

To receive federal student aid for the 2019–2020 school year, you can start filing your FAFSA application today, making sure it's submitted by June 30, 2019.

October 15

Six-month filing extension deadline for federal taxes.
Last day to undo a 2017 Roth IRA conversion (if you converted a traditional IRA to a Roth IRA during 2017 and paid applicable tax on the conversion with your 2016 return).

November 1

Start of enrollment for health insurance through Healthcare.gov.

December 31

Deadline to take RMDs from your IRA, 401(k), and inherited IRAs.
Deadline to set up most types of retirement accounts so that eligible contributions count toward the current year.

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This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Every Retirement Saver Should Know About Required Minimum Distributions

Emily Guy Birken — Wed, 10 Jan 2018 09:30:11 +0000

You may be aware of the fact that contributing money to a tax-deferred retirement account, like a traditional IRA or a 401(k), means you get to put money aside before it is taxed. This reduces your current tax burden and gives you a great incentive to save for retirement.

Unfortunately, Uncle Sam will eventually want his cut of that money. That's where required minimum distributions (RMDs) come in.

The good news is that you have until age 70½ before you have to worry about RMDs. But it's still important to understand how RMDs work and what to expect before you get to that age milestone.

What is a required minimum distribution?

Deferring taxes is great for the taxpayer, but the IRS can't afford for taxpayers to defer their taxes indefinitely. Individuals with tax-deferred retirement accounts have to actually withdraw money — and thereby pay taxes — or else those taxes will never get paid.

Everyone holding a 401(k) or IRA account (with the exception of Roth IRAs) must begin withdrawing money from those accounts during the year they reach age 70½. This ensures that account holders have enough time to allow their money to grow without permanently sheltering their money from federal taxes.

The IRS has established minimums that you must withdraw each year after reaching age 70½. If you fail to withdraw the proper RMD, you face a stiff penalty: The IRS will take 50 percent of the amount you should have withdrawn.

Calculating your RMD

It's also important to note that you are responsible for calculating and withdrawing the correct RMD each year — and the calculations aren't necessarily easy. Even if the custodian of your IRA or 401(k) does the math and paperwork for you, you are the responsible party in the IRS's eyes.

So how do you figure out your RMD? You need to start with three pieces of information:

Your date of birth.
The balance of each tax-deferred account as of Dec. 31 of the year before the year in which you turn 70½.
The IRS distribution table.

This IRS distribution table calculates your life expectancy based on your age. The table gives you a number that corresponds to the number of years the IRS expects you to live.

For instance, let's say a retiree was born on February 4, 1948, and will turn 70 in the first half of 2018. This retiree has a single IRA, with a balance of $250,000 at the end of 2017 (the calendar year before the year in which she turns 70½). To calculate her RMD, she'd look up her age (70) on the IRS distribution table to find the distribution period, which in this case is 27.4. She would then divide her IRA balance by the distribution period for her 2018 RMD:

IRA balance / Distribution Period = RMD

$250,000 / 27.4 = $9,214

To keep on the right side of Uncle Sam, she will need to withdraw a minimum of $9,214 from her $250,000 IRA in 2018. But remember, the operative word is "minimum." Account holders can always take more than their RMD if they choose to do so.

Why am I celebrating my 70½ birthday?

While 70½ may seem like an arbitrary number, there is a lot of thought put into this milestone age. The IRS makes a distinction between people born in the first half of the year, and those born in the second half. If your birthday falls between July 1 and Dec. 31, you don't officially have to take an RMD until the year you turn 71.

This means that those with birthdays in the first half of the year take their first RMD the year they turn 70, and those with the later birthday take their first RMD the year they turn 71 — which averages out to 70½. (See also: 6 Age Milestones That Impact Your Retirement)

Required beginning dates

To offer retirees a little more time to get their ducks in a row, the IRS does not require account holders to take their first RMD until April 1 of the year following the one in which you reach age 70½. That April 1 deadline is known as the required beginning date. The year in which that date falls depends on whether you have a birthday in the first or second half of the year.

So, our Aquarian born Feb. 4, 1948 will turn 70½ on Aug. 4, 2018. But remember, those born in the first half of the year calculate their RMD based on the year before they turn 70. So while she can wait to take her first RMD until April 1, 2019, at that point she'll calculate that RMD based on her age of 70 (which was her age as of Dec. 31, 2017), as well as her account balance as of Dec. 31, 2017.

The first year following the year in which you reach 70½ you will usually have two required distribution dates. Besides the April 1 date we just discussed, you'll also have to take another withdrawal by Dec. 31 of that same year. For our Aquarian, that means she will have to take a second RMD by Dec. 31, 2019. This RMD will be calculated based on her 2019 age of 71 and her account balance as of Dec. 31, 2018. This distribution catches her up on her requirements, and during all subsequent years, she is only required to take one RMD.

The required beginning date is similar for anyone with later birthdays. Let's say you're a Virgo with an Aug. 31, 1948 birthday. You'll turn 70½ on Feb. 28, 2019, which means you won't have to take your first RMD until April 1, 2020, and you'll calculate the amount based on your age of 71 (which is your age as of Dec. 31, 2018) as well as your account balance as of Dec. 31, 2018 — the year before you turned 70½. In addition to the April 1, 2020 distribution you will also have to take your 2020 RMD by Dec. 31, 2020, which you will calculate based on your age then of 72, and your account balance on Dec. 31, 2019.

Figuring out your required beginning date

If your birthday falls between Jan. 1 and June 30	If your birthday falls between July 1 and Dec. 31
Your required beginning date is April 1 of the calendar year you turn 71.	Your required beginning date is April 1 of the calendar year you turn 72.
You will use the age of 70 to calculate your first RMD amount.	You will use the age of 71 to calculate your first RMD amount.
Your second RMD is due by Dec. 31 of the calendar year you turn 71.	Your second RMD is due by Dec. 31 of the calendar year you turn 72.

How your RMDs are taxed

Since the entire exercise of taking RMDs is about making sure you pay the income taxes you owe, it's important to understand how your distributions will be taxed.

Your RMDs will be taxed as regular income at your applicable federal tax rate for the tax year for which you are making the withdrawal. This, in fact, may be the easiest-to-understand aspect of RMDs.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Retirement Struggles Nobody Talks About — And How to Beat Them

Carrie Kirby — Mon, 04 Dec 2017 09:00:07 +0000

If you have ever sat down with a financial planner, you know that one of the main questions that comes up is, "How much income do you think you'll need when you retire?"

When I was asked this question, the first answer that popped into my head was, "Hardly any!" In the retirement scenario in my mind, my kids were independent and my home was paid off, leaving few financial obligations. When pressed, I acknowledged that I might need some money for taking fun vacations with all that free time I'll have, and for buying gifts for my grandchildren.

While it's true that a lot of the big expenses of our working lives have ideally been paid off by retirement, retirees still face a lot of financial obligations. Retirement is not all learning to paint or strolling on the beach — despite what prescription drug ads may lead you to believe. A 2016 study by the U.S. General Accounting Office found that retirees on average spend 77 percent of what they spent while they were working, with spending declining decade by decade as retirees age. (See also: 9 Unexpected Expenses for Retirees — And How to Manage Them)

Let's go through some of the retirement expenses you may not have accounted for, and how to deal with them.

1. Health care

While other expenses shrink after retirement, medical care spending increases. In the present day, the increase is modest. The same U.S. General Accounting Office report found that retirees ages 65 to 79 spend an average $5,000 a year on health care, compared to $3,900 for workers aged 50 to 64. But predictions for future health care expenses in retirement are dire.

HealthView Services' 2017 Retirement Health Care Costs Data Report predicts that medical costs will rise 5.47 percent per year for the foreseeable future — meaning that today's 65-year-old may be spending $10,000 or more per year on health care by age 75, on top of Medicare coverage.

"Health care will be one of the most significant retirement expenditures; however, the savings required to cover this expense may be modest — especially if one has been utilizing an income replacement ratio (IRR) of 75% to 85%," warns the report.

HealthView recommends talking to your planner not just about income replacement, but also about what you expect medical expenses to be based on your current health. Look at optimizing your retirement portfolio to address those needs. For example, some advisers recommend saving for retirement medical expenses using a health savings account — although these are only available to workers who have high-deductible health plans. (See also: How an HSA Could Help Your Retirement)

Managing health conditions proactively can also make a big difference in expenses over a lifetime.

"A 50-year-old male with type II diabetes can save (an average of) $5,000 per year in pre-retirement health expenses by shifting from Poorly Managed to Well Managed care," the report says.

2. Taxes

You might expect your income tax to disappear or decline steeply when you retire, but remember that withdrawals from 401(k) plans and traditional individual retirement accounts are taxable, as are most pensions and some Social Security benefits. If your retirement plan involves collecting rent on properties you own, well, that's taxable too. And if you have paid off your mortgage before retiring, remember that you just lost a big tax deduction in the form of mortgage interest payments.

The problem of taxes during retirement is the reason many workers also invest in a Roth IRA or Roth 401(k) plan. Unlike a regular retirement account, which you fill with untaxed income, only paying taxes on withdrawals, a Roth takes income you already paid taxes on, and withdrawals are tax free. Since no one knows how tax rates when you retire will compare to tax rates today, many advisers recommend spreading investments across both kinds of accounts to hedge your bets. (See also: Here's How Your Taxes Will Change When You Retire)

Another thing to consider when retired is whether you plan to make charitable donations part of your estate plan. If you were going to give away thousands of dollars to charities in your will, for example, discuss with an accountant setting up a schedule of giving while you're alive, instead, so that you could take annual tax deductions that could reduce or eliminate taxes you owe.

3. Inflation

In recent years, inflation has been low, but the long term average annual rate of price increases is 3.22 percent. That means that if you retire with benefits and savings designed to cover 80 percent of your current income, those same benefits will cover a smaller portion of your current spending each year, if not invested to grow at a rate faster than inflation. This is why financial planners never advise keeping your life savings in cash, stuffed in a mattress.

Of course in retirement you don't want to take on big risks with investments, since you can't earn more money to replace what you lose. But you also can't be too conservative or you risk having inflation shrink your savings each year. With interest rates as low as they are, you can't count on earnings from certificates of deposit to surpass inflation. For most retirees, that means you must have some money in stocks, bonds, or other investments. And you must stick to your investment plan, even if the market gets rocky. (See also: 7 Reasons to Invest in Stocks Past Age 50)

4. End of life

When you plan your retirement, you're likely thinking more about all the golf you want to play or the traveling you want to do, not so much about spending your final years in a nursing home or planning your funeral. Unfortunately, those less fun expenses must also be planned for.

Take a realistic look at how much assisted living and nursing homes cost. If you are still young enough to get it, look into long-term care insurance. Discuss with your family whether they expect you to move in with them if you need more care later in life, or if they would prefer you plan for nursing home care or assisted living. If long-term care needs seem imminent, meet with an attorney who specializes in making Title XIX plans; they can help you learn what assets can be shielded from being liquidated to pay for care. (See also: Is Long Term Care Insurance Worth It?)

Medical expenses tend to jump in the final years, costing about $7,000 to $8,000 more per year in the last two years of life, according to HealthView Services.

Consider prepaying funeral expenses so that it's not a cost hanging over your head as you enjoy retirement. And certainly meet with an estate planner as part of your retirement planning to make provisions for the distribution of wealth after you are gone. (See also: 9 End-of-Life Cost Savings Your Survivors Will Thank You For)

5. Mandatory withdrawals

The moment you turn age 70 and a half, you are required to take minimum distributions from your IRA, 401(k), and other retirement accounts on a schedule set by the IRS. This doesn't sound like a problem — after all, this is what you saved all that money for. But what if you don't need to spend the required distribution this year? Unfortunately, you still have to withdraw it, and pay taxes on it, or the IRS will confiscate 50 percent of the money you were supposed to withdraw in the form of a tax penalty.

While you can't change the IRS's schedule for required withdrawals, and you can't roll the distribution into a different tax-deferred account, you can plan for this requirement and schedule income and spending around it. For instance, you can avoid selling real estate or other investments, or scale back work hours if you are still working, and allow the income you are getting from your retirement account to replace other income. And of course, you can always invest your distribution outside of retirement accounts, if you don't need to spend it.

Another way to conquer the mandatory distribution is to plan for it while saving for retirement, for example by putting some income into a Roth IRA, which doesn't have required distributions. As you approach retirement, if your IRA distributions look like they will be too large for you to use, you may also talk to a planner about converting a traditional account into a Roth.

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This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Three of the Toughest Decisions You'll Face in Retirement

Matt Bell — Wed, 27 Sep 2017 08:00:06 +0000

After spending a lifetime saving for retirement, you might think (or hope) the tough financial work is over. But in reality, retirement will bring several new financial challenges. Here are three of the key questions you'll need to address along with some recommendations.

1. When should I take Social Security?

There are many options here, especially when coordinating benefits with a spouse. Understanding the rules around three important age milestones can help you think through the best choice. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

Age 62

This is when you first become eligible to receive Social Security benefits. If you opt to take them this early, you'll get the smallest monthly benefit. While it's true that you may end up collecting benefits for the longest period of time by starting at age 62, if you can afford to do so, it's generally best to wait at least until your full retirement age (FRA). At that point, your monthly benefit will increase by 30 percent.

If you're planning to continue working to some degree in your early to mid 60s, this may be another reason to wait. Claiming Social Security benefits before your FRA will trigger an "earnings test." After you earn a certain amount (about $17,000 in 2017), for every two dollars of income, your Social Security benefits will be reduced by one dollar.

You can learn more about the earnings test on the Social Security Administration's website.

Full retirement age

If you were born in 1960 or later, your full retirement age is 67. That's the age at which you become eligible to receive what the Social Security Administration deems to be your "full" benefit.

An important consideration related to your FRA has to do with spousal benefits. If you earned significantly more than your spouse over your careers, his or her spousal benefit (half your full retirement age benefit) may be larger than his or her own benefit. While your spouse could file for spousal benefits as early as age 62, he or she will get the maximum amount only if you both wait until your full retirement ages before claiming benefits.

Age 70

While it may sound as if full retirement age is when you'll qualify for your maximum benefit, waiting until age 70 will actually give you more. When I checked my benefits on the Social Security Administration website, I found that waiting until age 70 would boost my monthly benefit amount by nearly 28 percent versus claiming it at my FRA of 67.

In addition to qualifying for this higher monthly benefit, another important reason to consider waiting this long has to do with the potential impact on your spouse. Let's say you're the husband and have been the higher earner. When you pass away, your wife will be able to trade her benefit for your larger benefit, which she will receive for the rest of her life. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

2. How much of my nest egg can I withdraw?

A long-standing rule of thumb is that you can safely withdraw 4 percent of your nest egg each year, bumping that amount up by the rate of inflation each year, without having to worry about depleting your savings before you die.

However, there are many moving parts to this equation. Your cost of living will probably vary throughout retirement, and so will the stock market's performance.

So, instead of adhering to a fixed formula, rerun the numbers each year using what some planners call a dynamic withdrawal strategy: Determine how much to withdraw based on the performance of your portfolio and your spending needs.

3. Which nest egg funds should I tap first?

If you have money in various accounts, such as a taxable account, a tax-deferred account (traditional IRA/401(k)), and a tax-free account (Roth IRA/401(k)), here's a recommended path for greatest tax efficiency.

Generally, it's best to use money in your taxable accounts first, which allows funds in tax-advantaged accounts to continue growing on a tax-deferred or tax-free basis.

Next, use money from your traditional IRA or 401(k) accounts. In fact, you have to start taking money from these accounts beginning at age 70½. That's when required minimum distribution (RMD) rules kick in. If you don't withdraw at least a specific minimum amount, you'll owe stiff penalties to the IRS.

One factor to keep in mind is that if you have substantial balances in traditional IRA or 401(k) accounts, waiting to tap any of this money until age 70½ may make your RMDs so large that they'll push you into a higher tax bracket. If that's the case, you may want to start taking some withdrawals from these accounts earlier than age 70½.

It's usually best to save your Roth IRA money for last since they are not subject to RMD rules. If you don't need the money, you can let it continue growing tax-free.

Stay in the game

While retirement may be a time when you want to step away from some of the many responsibilities you had during your working years, it's important that you stay proactive with regard to your finances. Making well thought out decisions in the three areas discussed above will go a long way toward helping you enjoy financial peace of mind in your later years.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Signs It's Time to Retire

Tim Lemke — Thu, 14 Sep 2017 08:00:06 +0000

There will come a time when you consider making the shift from worker bee to retiree. But knowing the best moment to stop working is not always easy to determine. How do you know whether your money will last once you stop earning a salary? Is there a "magic age," when retiring makes sense, or do you just go with a gut feeling?

There's no science to knowing when to retire, but there may be some signs to follow. If most or all of these apply to you, maybe it's time to submit that resignation and begin the next chapter of your life.

1. You have enough money for the retirement you want

It's impossible to know precisely how much you'll need in retirement, but there are some basic calculations you can make to see how long your money will last if you stop working.

You must first calculate what your annual living expenses will be. Research shows that people tend to spend less as they get older, but be sure to factor in the potential costs of new activities like travel, eating out, and caring for grandchildren. Then, examine how much money you have saved, and what the return on that money might be as you age. Match those numbers up with your expected life span. There are other things to consider, such as whether you plan to draw equity from your home. There are many online calculators that can help you with these figures.

Generally speaking, if you take the annual expenses you expect and multiply them by 25, you'll be in the ballpark of what you need to retire comfortably. Once you are approaching this number, it may be a sign that you can stop working. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

2. You must collect distributions from your retirement plan

If you have a 401(k) or IRA, there comes a point at which you are required to take distributions. For most people, this age is 70-½. You can delay taking 401(k) distributions until after you stop working, but not for the money in a traditional IRA. If you are being forced to take distributions, there's not much incentive to continue working.

3. You can collect the maximum in Social Security

The government incentivizes people to retire later by offering them more money from Social Security if they wait longer to collect it. You can begin collecting benefits as early as age 62, but those benefits will be higher if you wait longer. Those approaching retirement age can get full benefits if they wait until age 67, and may get additional credits if they wait until age 70. If you're already getting the maximum benefit from the government, perhaps it's a sign that you're ready to retire for good. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

4. Your expenses are the lowest they've been in years

Your house is completely paid off. The kids are out of the house and college is paid for. You're not yet at the point where you have high medical expenses. Your cost of living hasn't been this low in decades. Sure, you may have big ticket things you want to pay for (travel, for example), but your day-to-day existence no longer requires a bi-weekly paycheck. It's still important to assess whether you have enough saved to last, but if you've downsized your lifestyle to a super-low level, it may no longer be necessary to keep working.

5. You no longer get any pleasure from work

We've all heard stories about older people who continue working simply because it makes them happy. Often, working gives them purpose and a sense of satisfaction that can't be replaced in retirement. But what if you're not one of these people? What if the work itself isn't rewarding, and you find yourself drained rather than energized by it? Then it may be time to consider retiring, assuming that your financial ducks are lined up well. Life is too short to work at an unsatisfying job if you don't have to.

6. Your health is starting to decline

In a perfect world, you will be healthy and spry enough to take advantage of all that retirement can offer. You will be perfectly able to handle that long bike tour through the south of France, and those backpacking trips on the Pacific Crest Trail. You'll have energy to spend time and keep up with your grandkids. But, if you are starting to see your health fade, perhaps it's time to stop working before you're unable to enjoy retirement the way you wish.

7. Your spouse wants you to

If your significant other is done working and has an urge to begin the next chapter of their life, perhaps it's that time for you as well. Many of the happiest retired couples are those that retire at the same time, and make post-work plans together. How fun is your spouse's retirement going to be if you're still schlepping into the office every day? (See also: 5 Money Conversations Couples Should Have Before Retirement)

8. You are confident in your post-work plans

Many people continue working because they honestly don't know what they'd do otherwise. But if you have mapped out your retirement life, have a good sense of how you'll fill your days, and feel excited about what you want to do, that's a sign you may be ready to retire. If work is actually preventing you from moving forward on your plans, maybe it's time to think seriously about stopping work, assuming you are also ready financially.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Age Milestones That Impact Your Retirement

Emily Guy Birken — Wed, 23 Aug 2017 08:00:08 +0000

Legally significant ages seem to cluster early in life — you can drive at 16, vote, smoke, and enlist at 18, and drink at 21. After that, you might think that there are no more important age milestones to reach.

But there are more important milestones you'll reach as you near retirement. Here are the important ages that can impact your retirement, and the reasons why they were chosen.

Age 50 — Take advantage of catch-up contributions

IRAs and 401(k) retirement plans are tax-advantaged, which means you receive a tax-break by contributing to them. For traditional IRAs and 401(k)s, you contribute pretax income, which means you lower your overall tax burden for the year, and the money grows tax-free. With Roth IRAs and 401(k)s, you contribute post-tax dollars, and the money still grows tax-free. Since high income earners could potentially avoid paying any taxes at all if they simply contributed a large enough portion of their income, there are limits to the amount of money you can contribute each year. As of 2017, you can contribute an annual total of $5,500 to an IRA and $18,000 to a 401(k).

However, there is something called a catch-up provision for anyone over age 50. If you've reached your half-century mark, you can contribute an additional $1,000 to an IRA (for a $6,500 total contribution) and an additional $6,000 to a 401(k) (for a $24,000 total contribution). Taking advantage of these catch-up provisions can help you to make sure your retirement is more secure.

Age 59½ — Take penalty-free withdrawals from tax-sheltered accounts

Since you fund traditional IRAs and 401(k)s with pretax income, every withdrawal you make will be taxed at your ordinary income tax rate. But if you try to withdraw money from either of these types of accounts before you have reached age 59½, then you will also owe a 10 percent early withdrawal penalty on the amount you withdraw, in addition to the ordinary income tax.

You are not required to take withdrawals as of age 59½ — that is just the earliest age that you are allowed to do so without incurring a penalty.

You might be wondering why 59½ is the magic number. Congress decided to use this age because life insurance actuarial tables consider you to be 60 years old once you have reached age 59 and six months, and at the time that the rules were put in place, 60 was a relatively common age for retirement.

Age 62 — Take early Social Security retirement benefits

Social Security beneficiaries reach eligibility as of age 62. This is the very earliest that you can access your benefits from Social Security, although taking your benefits the moment you've blown out 62 candles is not necessarily a good idea.

Social Security changes the benefit amount based on whether you retire before or after your full retirement age. This means the longer you wait, the more money you will see in your benefit checks — to the tune of about an additional 8 percent per year. If you take benefits before hitting your full retirement age, your payments will be permanently reduced. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

These early benefits have been around for quite some time. Early retirement at age 62 was introduced for women only in 1956, and the option was extended to men in 1961. Women were offered this benefit first because of the concern for widows without an income, although it became clear that men were also very interested in the option of taking early benefits.

Age 64 and 9 months — Enroll in Medicare

The initial seven-month enrollment period for Medicare spans from the three months before your 65th birthday, through the month of your birthday, and the three months following your birthday. Enrolling during this period means you will pay no fees or penalties for enrollment, and enrolling within the three months before your 65th birthday means that you will have Medicare coverage starting on the first day of your birthday month. Enrolling during your birthday month or afterward will result in a delayed start for coverage.

If you miss the initial enrollment period for Medicare, you can still sign up during the general enrollment period between January 1 and March 31 of each year, and your coverage will begin July 1 of that year. However, there is a late penalty for missing your initial enrollment period. For Medicare Part A, your monthly premium will increase by 10 percent for twice the number of years that you could have had Part A but didn't sign up.

If you miss the initial enrollment period for Part B, you will have to pay the late enrollment penalty for as long as you are a Medicare beneficiary. The monthly premium will increase by 10 percent for each full 12-month period that you were eligible for Part B but did not sign up.

Age 66 or 67 — Reach full Social Security retirement age

Your full retirement age is the point at which you receive your full benefits from Social Security. When Social Security was first enacted, 65 was chosen as the retirement age. In 1983, to deal with the coming demographic shift that would occur when baby boomers started to retire, Congress gradually increased the full retirement age from 65 to 67, based on birth year:

Birth Year	Full Retirement Age
1943-1954	65
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

Age 70½ — Begin taking required minimum distributions

When you put money into a tax-deferred account like a traditional IRA or 401(k), you don't have to pay taxes on that money until you withdraw it. While this helps your tax burden during your career, you do need to remember that Uncle Sam will want his cut eventually.

This is why the IRS requires each account holder to begin withdrawing money during the year he or she reaches age 70½. There is a minimum withdrawal you must take, and failing to take out the minimum means the IRS will take 50 percent of the amount you should have withdrawn.

To figure out your required minimum distribution (RMD), you need to calculate it based upon the balance of each of your tax-deferred accounts as of December 31 of the previous year, and the correct IRS distribution table. These tables calculate life expectancy based upon your age and give you a number (corresponding to the number of years they expect you to live), by which you will divide your balance to determine your RMD.

It may seem that 70½ is an arbitrary number, but there is a lot of thought put into this milestone age. The IRS makes a distinction between people born in the first half of the year, and those born in the second half. If your birthday falls between July 1 and December 31, you don't officially have to take an RMD until the year you turn 71. This means that those with birthdays in the first half of the year take their first RMD the year they turn 70, and those with a later birthday take their first RMD the year they turn 71 — which averages out to 70½.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Expensive Mistakes of the Newly Retired

Mikey Rox — Wed, 10 May 2017 09:00:07 +0000

Transitioning to retired life on a fixed income will undoubtedly have a few bumps in the road. This is a brand-new chapter of life for you, and it's reasonable to expect some challenges ahead. The last thing you want to do, however, is compromise your nest egg with costly, easily avoidable mistakes. After all, you need that money to get you through the rest of your life.

As such, consider these costly mistakes of the newly retired so you don't follow suit.

1. Not balancing your portfolio

Retiring doesn't mean you have to stop investing. You can still dabble in the stock market, but perhaps not as aggressively as you once did. Risky bets could cost you your life savings, which means that you'll either have to go back to work past age 65, or put your hat out on a street corner. Neither of those options sound great in the golden years of life, so it's important to ensure your retirement portfolio is balanced.

"Annuitizing a significant portion of one's retirement income can complement a portfolio of stocks and bonds," says Jim Poolman, executive director of the Indexed Annuity Leadership Council. "Fixed indexed annuities (FIAs) can serve as part of a balanced financial plan because they do not directly participate in any stock or equity investments and [they] protect your principal from fluctuations in the market."

2. Not changing your lifestyle after retirement

Your spending habits as a retiree will need to change if you're going to make it for the long haul. This is especially true if you're not receiving any kind of monthly payments, like Social Security or disability, to help with bills. You can live off what you have in the bank (hopefully; otherwise you shouldn't be retiring yet), but you may have to downsize and rethink your spending strategy.

This means you need to start learning how to save money on everyday expenses, and re-evaluate your budget to find places for cuts. Don't expect yourself to suddenly drop 30 percent or more of your spending. Work your way to it by making small cuts at a time before you retire.

3. Not evaluating risk

When you start saving for retirement, you may have a certain monetary goal in mind — either based on what financial sources have told you, or what you've calculated you'll need based on your lifestyle. But you may not be accounting for the ups and downs of Wall Street and inevitable inflation.

"Revisit your retirement plan to make sure your savings reflect your new needs, and adjust for market conditions," Poolman advises.

4. Spending too much money too soon

When you retire, what you have is what you have. Unless you still have income coming in somehow, you have to mind your money and avoid the temptation to spend it on splurges, especially if you find yourself bored in the first year of your forever vacation.

"Before finalizing your retirement, you must take into consideration that you will only be living on a fixed amount of money," Andrew Fiebert, co-founder of Listen Money Matters, says. "Oftentimes the amount of retirement savings looks pretty large, but retirees must keep in mind that money will have to last a very long time — hopefully a very, very long time."

The enticement to spend your money can be almost irresistible, but discipline is vital. Depleting your money beyond the interest that it earns will hurt the principal and leave you with nothing after just a few years.

5. Loaning money to adult children

I get it — you love your kids. But at what cost?

According to a 2015 Pew Research Center poll, a whopping 61 percent of parents in the U.S. admitted to helping their adult children financially. That may be well and good if you have that kind of disposable income lying around (though it only fortifies your children's reliance on you; learn to say NO!). However, if you already need to cut back because you didn't save enough to live an easy, breezy retirement — which applies to most Americans — providing handouts, the payback of which you may never see, could put you in a financial pickle.

Don't be afraid to cut your grown children off. If you don't have the extra money, neither do they.

6. Taking Social Security benefits too early

The overriding argument against claiming Social Security benefits too early is that you won't receive your full benefit potential. That could come back to bite you later in life.

If you decide to claim Social Security benefits before you reach your full retirement age, you'll receive a smaller monthly payout — up to 30 percent less. If you absolutely need that money before your benefits fully mature, then by all means do what you have to do to survive. You'll be better off, however, the longer you wait.

7. Not taking required minimum distributions after age 70-½

Starting at age 70-½, you must take required minimum distributions (RMDs) from your traditional, SEP, or SIMPLE IRA each year to satisfy rules set forth by the IRS. If you don't, you'll pay penalties.

You can calculate your required RMD by dividing your IRA account balance as of Dec. 31 of the prior year by the applicable distribution or life expectancy. Qualified charitable distributions can satisfy your RMD, by the way, which you would report on Form 1099-R on the calendar year in which the distribution is made. Do good and save yourself the penalties while you're at it.

8. Falling victim to money scams

Scammers love retirees and the elderly. Why? Because they've usually got money to burn, and they're much easier to fool than the average working-age person. Sad, but true.

There are plenty of scams out there, too, and they're getting more intricate all the time — like one where the scammer poses as the victim's grandchild and begs the grandparent to send money. To prevent yourself from being scammed, remember these two major rules: Never provide personal information over the phone or via email, and never wire any money unless you've spoken directly to your family member or friend who is requesting the transfer. (See also: What to Do When You Suspect a Scam)

9. Failing to account for the unexpected

The reality of retirement is that while you'll certainly have more time to kick back and relax, life isn't necessarily going to get easier — and you have to prepare for that. Everyone will die eventually, and it's smart to plan ahead not only for end-of-life accommodations, but also long-term medical care.

You may live a long and healthy life, but eventually you'll need someone to care for you — whether that's in a family member's home or a professional facility — and that will cost money. Hedge your bets by looking ahead and putting those funds aside now. (See also: Is Long Term Care Insurance Worth It?)

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: