When we plan for retirement,both financially and mentally,we know that it willbe a wonderful reward after a lifetimeof hard work, but when is the besttime to retire?
It is a difficult decision to leave theworking world with the confidence thatwe are financially ready to forego oursteady income. There are many factorsto look at when deciding whether or notto retire—your family situation, health,and financial stability, among manyothers. If you're getting close to retirementand are not certain if you're financiallyready, you may want to considerworking a little longer.
Staying on the job for just 1 or 2 moreyears could help you add another year toyour retirement savings and allow moretime to grow. In addition, maximizingyour contributions to an employer-sponsoredretirement plan, such as a 401(k),can help boost your retirement nest egg.Likewise, by meeting your expensesfrom your earnings, and not tappinginto your retirement portfolio, themoney in your retirement accounts cancompound for a while longer. Postponingretirement may also increaseyour overall Social Security benefit.
However, if you do not or cannotwait any longer to retire, many investmentvehicles make it difficult for youto access your funds without tax penaltiesbefore age 591/2. If you are consideringretiring before age 591/2, you maywant to dip into your IRA instead. Tryto avoid the 10% early withdrawalpenalty that the IRS may impose on theamount you withdraw from your IRAby taking what's known as 72(t) distributions.This strategy requires you totake—at least annually—substantiallyequal withdrawals that you computebased on IRS life expectancy tables andmethodologies. You must continuethese withdrawals for 5 years or untilyou reach age 591/2, whichever is longer.
For example, if at age 50 you begintaking these periodic withdrawals,you must continue them until age591/2. Yet if you start the withdrawalsat age 58, you would have to continuethem for at least 5 years from the firstpayment date, or until age 63. If youtake 72(t) distributions, consider splittingyour IRA in two—one for withdrawalsand the other to continue topotentially grow and act as a fallbackin case of emergency.
A solid plan and a good understandingof your goals will not only help youprepare for your future, but will alsogive you an idea of where you standfinancially. You should work closelywith your financial consultant to planfor retirement as well as to determinewhen the best time may be for you tostep into your golden years.
is vice president, investments,
and a financial consultant with AG
Edwards in Hillsborough, NJ. He welcomes
questions or comments at 800-288-0901,
or visit www.agedwards.com. This article
was provided by AG Edwards & Sons, Inc, member SIPC.
Joseph F. Lagowski