Choose the Best Time for You to Retire

Physician's Money Digest, June 2006, Volume 13, Issue 6

It can be difficult to leave the workingworld with the confidence that youare financially ready to forego yoursteady income. There are many factorsto look at when deciding whether or notto retire: family situation, health, andfinancial stability, among many others. Ifyou're getting close to retirement and areuncertain if you're financially ready, youmay want to consider postponing it.

Staying on the job for just 1 or 2 moreyears could help you achieve higherretirement goals and increase the possibilitythat your funds will last longer.

Waiting another year also gives yourretirement savings more time to grow.Likewise, you'll manage your expensesusing your earnings, not by tapping intoyour retirement portfolio. This willallow the money in your retirement accountsto compound for a while longer.

Postponing your retirement may alsohave some impact on your SocialSecurity benefits. The formula for calculatingthese benefits is complex, butadding another year of income mayincrease the size of your overall benefit.

Despite the benefits of delaying retirement,you may not want or may not beable to wait to retire. Many investmentvehicles make it difficult to access fundswithout tax penalties before age 59½.But if you are considering retiring beforeage 59½, you may want to dip intosome income from your IRA.

If you decide to do this, you'll wantto take steps to avoid the 10% earlywithdrawal penalty that the IRS mayimpose on the amount you withdraw.One way to do so is by taking what'sknown as 72(t) distributions, whichare essentially a series of substantiallyequal periodic payments. This strategyrequires you to take—at least annually—substantially equal withdrawalsthat you compute based on IRS lifeexpectancy tables. You must continuetaking these withdrawals for 5 yearsor until you reach age 59½, whicheveris longer.

For example, if at age 50 you begintaking these periodic withdrawals, youmust continue them until age 59½. Ifyou start the withdrawals at age 58, youwould have to continue them for at least5 years from the first payment date oruntil age 63. If you use this strategy, youmight consider splitting your IRA intwo—one for withdrawals and the otherto continue to potentially grow and actas a fallback in case of an emergency.

A solid retirement plan and understandingof your goals will not onlyhelp you prepare for your future, butwill also give you an idea of where youstand financially. You should workclosely with your financial consultantto plan for retirement as well as todetermine the best time for you to stepinto your golden years.

Joseph F. Lagowski 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.