Financial LifeStage – Later Life Income Management
- More Americans 65+ are working
- Strategies for required minimum distributions (RMDs)
- Diversify for income, not only for investment
Are you ready to make the transition from paycheck income to retirement income?
When To Stop Working
You may be surprised to learn that the age 65+ age group is going back to work more than any other. The longer you work, the fewer years you may need to draw upon your savings. That may help you project how your income can meet expenses later in life.
A required minimum distribution, or RMD, is a percentage of your retirement account value which by law must be distributed as income to you each year, beginning at age 70 ½. The US Government wants to finally get paid on income you earned years ago but on which income taxes were deferred while that money was invested in one or more retirement plans, such as a 401(k), 403(b), 457, or traditional IRA. RMDs force that money to be distributed out of those plans to you so they may be taxed.
If you think taxes and/or your income tax bracket may rise in the future, you may want to consult with your tax advisor and consider converting a certain amount of your retirement funds to a Roth IRA sooner than later. Many people convert some of their retirement funds to Roth IRA funds from age 60 to 70. They do pay taxes in the year they convert those funds to the Roth account, but that Roth money may then grow tax deferred for later use at the discretion of the owner. And when those funds are ultimately distributed from the Roth account and used, they are not recorded as income because that already occurred in the conversion year. The result is the use of income tax free money later in life that does not affect one’s tax bracket.
Diversification for income, not only for investment
Many Americans planned to retire in 2008-2009, but could not when the market crashed.
People spend a lot of time thinking about diversifying their investments so any one negative event, stock, or bond will not ruin their overall portfolio. But did you ever think about diversification to protect your later life or retirement income as you approach later life? That is, if your invested assets are at a relative high water mark, should you convert some of this appreciated value to guaranteed lifetime annuity income that is not subject to market risk? Should you pay off the principal and interest part of your mortgage with that money to permanently lower your later life monthly expenses? Wouldn’t that also be a form of diversification—like taking some winning chips off the gambling table and cashing them in? The means is investing. The end game, however, is having income.
For a complimentary projection of your later life income, click here.
While diversification through an asset allocation strategy is a useful technique that can help to manage overall portfolio risk and volatility, there is no certainty or assurance that a diversified portfolio will enhance overall return or outperform one that is not diversified.