What is Your Retirement Path?
Why Boomers Want to Age in Place

Why 70-1/2 is a Magical Age

MusingsIf you're closing in on 70-1/2 years of age, you're about to reach a milestone that has been established by our government as a magical age. On the positive side, that's when you must start drawing from your retirement accounts without penalty (it's called "RMD," or Required Minimum Distribution). On the negative side, it's now time to pay the taxes on that income, although they are likely to be paid at a lower rate because of your age.

There are very specific rules related to drawing from your retirement accounts. According to Wharton business economics and public policy professor Olivia Mitchell, "The rules are specified related to your age. For example, beginning at age 70 1/2, you must take out about 3.7% of the total amount in your IRA and the same amount out of your 401K plans if you’re retired. By the time you’re 80, the percent goes up to about 5.5. And at age 100, you have to take out 15.9%."

Mitchell adds that things can get complicated if you're still working at age 70-1/2, or if you have retirement money spread across several accounts: "...wait until you’re 70 1/2 to start drawing down your retirement accounts as long as you’re not working. If you have several IRAs, the law says that you can amalgamate the total and take your required minimum distribution out of just one of them, so you don’t have to dip into each individually to get to the total. However, if you have several 401(k) plans from previous employers, you have to take it out of each one separately. So, it’s a little complicated."

Mitchell has some other sound advice about retirement accounts. You can listen to or read her comments here: http://knowledge.wharton.upenn.edu/article/are-you-ready-for-retirement/

I have a few comments on the matter myself.

First, I wish the government would make things easier, not more difficult, for retirees. It seems to me that the worst time to have to deal with complex financial issues is as you grow older. If you've had to deal with the wonderful world of Social Security and Medicare, you already know how convoluted things can be with these two programs for older Americans. Unfortunately, drawing on your own retirement accounts after you reach 70 isn't much easier.

Second, once again this reinforces the need for a trusted, objective financial planner. If you're already in your sixties and you don't have one, do not delay any longer. It is never too late to get solid financial advice, and with retirement account distributions coming up, it's essential. I have said it before on this blog, but I'll say it again: One of the smartest things my wife and I did early on in our marriage was to get a financial planner to help us. It made all the difference in the world.

Reaching that magical age of 70-1/2 can be a good thing in many respects, but making the right financial moves can make it better. 


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