I recently asked Morningstar.com readers whether their retirement-plan withdrawals were fixed or variable. A lively thread on our Discuss forum boards ensued, with retirees and pre-retirees sharing lots of sensible advice.

As I read through the comments, however, I realized that there's still a lot of confusion about this topic, and I inadvertently stoked it with the terms I referenced in my question. For starters, whether a payout is fixed and variable is really in the eye of the beholder: Taking out a fixed percentage of a portfolio per year results in varying amounts of dollars coming in the door, while taking out fixed dollar amounts will mean that a retiree's withdrawals will vary on a percentage-of-portfolio basis.

Moreover, even though "safe withdrawal rate" has become a nearly ubiquitous term in retirement-planning circles, the "withdrawal" part of the phrase is something of a misnomer. As such, it tends to stir up unnecessary acrimony or, at the very least, confusion. Some income-oriented investors assume, not unreasonably, that "withdrawal" means that retirees steadily invade their capital until it's all gone, ignoring income-producing securities altogether. But the "withdrawal" in "safe withdrawal rate" generally assumes that retirees can be free-ranging in terms of where they go for cash, such asdrawing income for living expenses from bonds or dividends, rebalancing proceeds, required minimum distributions, tax-loss sales, and yes, the outright selling of securities. In a similar vein, the term "income" also fans the flames of confusion (and stirs investing passions). Are we talking about actual interest and dividend income, or income for living expenses from wherever we can scare it up? The term "distribution" is more encompassing than "withdrawal" or "income," but you don't see it used as much.

Given all of the question marks flying around about the topic of--ahem--retirement distributions, as well as the importance of arriving at a sensible and sustainable strategy, I thought it would be useful to provide an overview on some of the key approaches: how they work as well as their pros and cons.

Income OnlyThe granddaddy of all retirement strategies, the income-only approach means that the retiree subsists on whatever dividend and interest income distributions his or her holdings kick off. Someone earning 5% in dividend and interest income on a $1 million portfolio can spend $50,000 that year.

Pros: It's no wonder so many retirees anchor on this strategy. In addition to being easy-to-understand, there are few more comforting notions than knowing that your portfolio can create all the income you need. Because you're not touching your principal, you can pass it to your heirs or use it for periodic splurges.

Cons: The obvious drawback with income-centric approaches, as yields have slunk lower during the past few decades, is that it has gotten tough to generate a livable income stream from an income-only portfolio without an awful lot of wealth or without taking substantial risk. Because yields on safe securities like cash and high-quality bonds have dropped so low, many income-hungry retirees have found themselves venturing into increasingly arcane and volatile asset types in order to generate the income they need. Moreover, those using the income-only approach may give short shrift to their own quality of life in retirement while passing on outsized sums to their heirs; that may or may not have been their plan.

Percentage of Starting Balance With Annual Inflation AdjustmentThis is the strategy that underpins the so-called 4% rule for retirement distributions. The 4% rule doesn't mean the retiree withdraws 4% of her portfolio's value throughout her retirement years. Rather, under this method, retirees calculate 4% of their starting balance when embarking upon retirement, and use that as their distribution amount in year 1. (Again, that distribution can come from any combination of dividend and interest income, rebalancing and tax-loss sale proceeds, and portfolio withdrawals.) The retiree then inflation-adjusts that dollar amount annually throughout her retirement, as discussed in this article (http://news.morningstar.com/articlenet/article.aspx?id=388066).

Pros: The big benefit of this approach is that the retiree's real payout remains fixed throughout his or her life, allowing for an even-keeled and predictable standard of living--something most retirees want. And assuming the starting withdrawal amount is reasonable given the retiree's time horizon and the investment portfolio's asset allocation, the retiree will have a good chance of not outliving his or her nest egg, according to a fairly broad body of investment research.

Cons: The big disadvantage of distribution approaches that use a fixed real dollar payout is that they're not sensitive to market performance. In very strong and sustained up markets, for example, sticking with the predetermined withdrawal amount might lead the retiree to live more modestly than necessary. Perhaps more worrisome is what can happen if a retiree doesn't adjust his or her withdrawal rate in a prolonged down market: What started out as a 4% rate of withdrawal can readily morph into a much higher percentage in an unforgiving market. Although a fixed real dollar payout is appealing on many levels, real-life income needs might be lumpy: higher in some years, lower in others.

Originally posted here:
In-Retirement Distributions: There's More Than One Way to Get It Done

(MoneyWatch) Americans now view age 67 as the age at which they expect to retire, according to a recent poll by Gallup. This is up from age 66 a year ago, age 63 a decade ago, and age 60 in the mid-1990s.

There are various reasons respondents gave for this increase, including insufficient savings, crashes in the stock and housing markets, a weak economy and job market, and uncertainty about Social Security and Medicare. Given these trends, the increase in the expected retirement age is certainly understandable, and may even reflect a permanent change in Americans' expectations.

But are these expectations realistic? The Gallup poll reported that the average age at which people actually retired increased from age 57 in 1991 to only age 60 today. Other polls, such as the Employee Benefit Research Institute 2012 Retirement Confidence survey, also reported that many Americans are often forced to leave the workforce before they planned.

Add to these challenges the pervasive dissatisfaction that many people report with their work lives, and you've got a group of people who may be in a bind. For example, according to Mercer's recent What's Working survey, only 60 percent of workers age 55 to 64 are satisfied with their employer, a rating lower than that of all younger age groups. But this group is also the least likely to quit; only 24 percent of this older age group report they are seriously considering leaving their current employer -- again the lowest rating of all age groups.

This puts in numerical terms that sad refrain, "Work sucks, but I need the bucks." Fortunately, there's an answer to that dilemma that, while obviously challenging in practical terms, is simple in principle:

1. Don't do work that sucks 2. Need fewer bucks

While that's easier said than done, of course, it vividly tells you what to focus on. So let's see how you might actually make this two-step strategy work.

Don't do work that sucks

Numerous articles focus on the mechanics of job-hunting for older workers, and that is indeed a valuable exercise. But before running off to find a job, take the time to ask yourself exactly what you should be hunting for. How can you find work that gives you satisfaction instead of frustration? I asked this question of John Nelson, author of "What Color Is Your Parachute - for Retirement?" and he had some interesting advice to offer.

John's next suggestion was to start fresh or lower on the totem pole in a new area. Like people in their 20s, who have few monetary commitments and are just starting out, people in their 60s might also be able to afford to take some risks. They may have fewer monetary commitments such as dependent children, they may also have a savings cushion on hand, and they have a lifetime of experience to draw upon to help them find a new career. John suggests that you assess your interests and discover the skills that you most like to use, then look for an organization that supports your values and find a group of people whom you actually want to spend time with.

Read this article:
Delaying retirement? Here's how to make it work

DENVER, June 6, 2012 /PRNewswire/ --Retirement Planning Resources expert Chris Ravsten is offering a continuing education lunch and learn to teach Denver CPAs about two of the most underutilized and misunderstood tax reduction concepts concerning sections 412i and 412eIII of the IRS code.

Attendees will enjoy lunch at the Cool River Cafe on Monday, June 11th, 2012 from 11am to 1pm while learning how to help clients who are paying taxes on 1099 capital gain income from investment portfolios and those who are paying more than $100,000 a year in income taxes.

Along with these IRS codes, attendees will also learn about tax-loss harvesting and individual security sales within an investment portfolio. These concepts help clients retain earnings and reduce income taxes.

CPAs attending the event will also get the chance to discuss how to use a captive insurance company to deduct up to $1.2 million in profits, tax-deductible, to self-insure liabilities.

Speakers will include

Attendees will earn 10 hours of CPE upon the completion of this course.

The tax information event of the year, interested CPAs can RSVP or get more information by calling 303- 749-5842 or emailing Roni@RetirePR.com.

Retirement Planning Resources is Denver's source for information on tax-free retirement preparation. Helping clients across Colorado prepare for their futures, Melinda Ravsten and the Retirement Planning Resources team works diligently to help pre-retirees and retirees prepare for retirement and save their hard-earned money from taxes and the volatility of the unsteady stock market.

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Colorado Retirement Expert Offers 10-Hour Continuing Education Opportunity for Local CPAs

I'm 55 years old and feel I can't afford to lose my savings if the market tumbles. What should someone 10 years from retirement do to protect her nest egg from the next downturn? -- Vicky I., Wheaton, Ill.

Given the recent lousy jobs report for the U.S., Europe's ongoing debt woes and the stock market's roughly 10% decline since the beginning of April, I can understand why you're anxious about market losses decimating your retirement stash.

But while protecting your savings from Armageddon in the markets is certainly one goal as you head into the home stretch to retirement, it's not your only aim. If it were, I'd tell you to just invest your nest egg in Treasury bills or FDIC-insured savings accounts and stop worrying. You wouldn't earn much -- maybe 0.5% or so -- but your dough would be safe.

Problem is, that with at least 10 more years of investing before you retire and maybe another 25 to 30 years after retiring, you can't afford just to huddle in the most secure accounts.

If you want your nest egg to support you over the course of a long retirement, during which inflation could conceivably double your living expenses, you're going to need at least a little bit of capital growth from your retirement investments.

So the question for you is this: How do you balance your goal of safety with the need for some growth?

The answer lies in assembling a mix of stocks and bonds that can prevent a market selloff from vaporizing your savings while simultaneously giving you a shot at returns high enough to maintain your purchasing power in retirement.

Danger zones: Common threats to your home

Unfortunately, as much as I'd like to I can't give you the stocks-bonds blend that's right for you. The mix that's appropriate will depend on such factors as how large a nest egg you have (the more money you have, the more you can likely afford to invest in stocks), how much risk you're willing to take (the more anxious you get when your savings balance falls, the less you'll want to put in stocks) and what other resources you have to fall back on (if you have a pension or lots of home equity you can tap, you can devote more to stocks).

But I can suggest two ways you can get a decent sense of how to divvy up your savings. The first is to check out a target-date retirement fund. For example, Vanguard's Target Retirement 2020 fund -- which is designed for people in their mid-to-late 50s planning to retire in 2020 or thereabouts -- has about 65% of its assets in stocks and 35% in bonds. You don't have to adopt that mix exactly. But you can use it as a starting point and then raise or lower the stock percentage depending on your tastes.

See the rest here:
Retirement savings: How do I protect my nest egg?

If, like me, you spent most of the past weekend working in the yard, pulling weeds, cutting grass, and clipping bushes, then maybe you've started to fantasize about the ideal place to live in retirement. Where would it be? What would it look like?

A few intrepid souls may want to move to the country. I know one woman who left Washington, DC, to go live in the outback of New Mexico. But she's an exception. The reality is most of us currently living in the suburbs will probably stay in the suburbs. Certainly, plenty of retirement homes, independent living facilities, and age-restricted developments (sometimes disguised as gated communities) have cropped up in the past decade to cater to aging baby boomers. Most of us are ready to give up the basement, big garage, tool shed, and all the paraphernalia that goes with them.

My own fantasy is to downscale to a little patch of lawnabout as big as an average-size bedroomwhere I can grow a few flowers and a tomato plant to two and not cut any grass at all. I'd like to live in a small town that is not too big or bustling, but with sidewalks and a coffee shop down at the corner where I could walk in the morning. I worry about the noise. I've had problems with noisy neighbors in the past. But the older we get, the less we're able to hear, so maybe the ambient noise from cars and kids and dogs won't bother us.

My friend moved to the New Mexico mountains, but many more people are drawn to the sea. Most of us cannot afford waterfront property in Cape Cod, Myrtle Beach, Sarasota, or San Diego. But as long as we're fantasizing, we can dream of retiring near the seashore. My brother-in-law was able to do it. But he had to trade in a four-bedroom house with an acre of yard for a two-bedroom bungalow with less than a quarter acre, but its also about 200 yards from the Atlantic Ocean.

A lot of us like to play golf. There are certainly plenty of golf communities to fulfill those dreams. But golf as a sport peaked about ten years ago, when everyone thought they could be the next Tiger Woods. Now people don't want to be the next Tiger Woods, and the allure of the golf community has perhaps dimmed a little. Nevertheless, most retired people want a social life. So if you're going to move away from your old hometown, then you want a place where there are other newly retired people who are open to new friendshipsnot a town where everyone has been friends since 4th grade and aren't interested in meeting new people.

You might want your new home to have access to parks and other recreational venues. If you dont play golf, then perhaps youd be interested in a marina, bike trail, or shuffleboard court. Even when you're retired, you should remain active and involved. Your new town might offer a vibrant local library. Maybe there's a book club you could join. Many people dream of retiring to a university town, from Newark, Del., to Athens, Ga., to Tempe, Ariz.

You might be tempted to buy an older home with lots of charm. But be careful. Older homes require more repairs. You don't need anything too big. Two or three bedrooms might be enough. Thats probably enough room for the kids to visit, but not so spacious that they'd want to stay for too long. You might want to choose a one-story house. You likely will not want to have to climb stairs when you get older and your knees start to go. Maybe you could compromise on a place with the master bedroom on the first floor, and a guest room or two on a smaller second floor. Its also prudent to have a good medical facility nearby.

You probably want your new place to be accessible so the kids will visit now and then. So consider places that arent too far from an interstate or major airport. If you're going to get the kids to visit, there have to be some attractions that would appeal to them, such as the beach, some nightlife, a multiplex theater, and some live music. A mild climate thats not too hot in summer or cold in winter could help ensure year-round comfort.

Is this retirement vision completely unrealistic? Maybe. But it's an ideal, a prototype to get you started. It's still in the planning stages. First, we've got to get through next weekend, and another afternoon of cutting grass.

Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement, and other concerns of baby boomers who realize that somehow they have grown up.

See the rest here:
Dreams of the Ideal Retirement Home

NEW YORK--(BUSINESS WIRE)--

As attention to the importance of creating retirement income grows, a new MetLife study finds that plan sponsors of the largest workplace retirement plans and their recordkeepers have taken the first steps to help participants secure retirement income but a lot more work needs to be done to pave the way for participants to begin to take action.

MetLifes Retirement Income Practices Study: Perspectives of Plan Sponsors and Recordkeepers for Qualified Plans, released today, examines the dynamics of the plan sponsor-recordkeeper relationship with regard to the provision of lifetime income options in qualified plans. The study assesses whether, and to what extent, plan sponsors of defined benefit (DB) and defined contribution (DC) plans, and recordkeepers are communicating about and closely coordinating their efforts to offer retirement income education, strategies and solutions for their participants. A full copy of the study, which includes considerations for plan sponsors, recordkeepers and policy makers, can be found at http://www.metlife.com/retirementincomestudy.

Retirement Income Will Emerge As Biggest Retirement Practice Trend

Both plan sponsors and recordkeepers agree that a focus on retirement income will be one of the biggest retirement practice trends to emerge in the near future. Ten of the 12 recordkeepers surveyed said an increasing focus on retirement income is among their top predictions for the next three-to-five years and one-third of plan sponsors agree it was the most frequently cited prediction among this group.

While recent actions by the U.S. Treasury Department are expected to pave the way for millions of Americans to have better and more accessible retirement income options, plan sponsors and recordkeepers need to work together to facilitate participants ability to understand their retirement income needs and use their plan(s) to generate a paycheck for life, said Cynthia Mallett, vice president, Product & Market Strategies, Corporate Benefit Funding, MetLife.

Plan Sponsors Favor Self-Service Approach for Projecting Retirement Income but Few Participants Interact With the Tools Provided

While many tools have been developed that will show the amount of monthly income a participant might receive during retirement, the research found that such projections are not automatically shown to participants when they view their account balances online, nor are they routinely provided to plan participants on statements summarizing their total and vested account balances. Instead, plan sponsors appear to favor a self-service approach to modeling retirement income projections for their plan participants.

Plan sponsors and recordkeepers recognize that this do-it-yourself model is not taking hold among participants. The majority of recordkeepers surveyed estimated that 25% of plan participants or fewer have made the effort to project their retirement income.

Plan Sponsors Say Participants Want Guarantees

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Plan Sponsors and Recordkeepers Agree That Retirement Income Will Be “The Biggest Trend” Over Next Five Years

The best way to save for retirement is to follow the usual advice: save more, long longer, delay Social Security and so on. But experts also say there are many little-known retirement tips worth following, too. Here's a look at 10 such tips that advisers say you shouldn't overlook.

1. Forget 'The Number'

You are more than welcome to go about your life worrying whether you've saved enough -- say $1 million or $2 million -- to retire. But that's not the number you should focus on, said Wade Pfau, an economics professor at the National Graduate Institute for Public Policies in Japan and a frequent blogger on retirement issues. "There is no such thing as a specific wealth number that will suddenly allow you to retire," Pfau said. "The income stream your wealth can support matters much more than how much wealth you have. The income stream supportable by a given amount of wealth varies with interest rates and other factors."

2. Don't rely too much on the 4% rule

Speaking of income, David Blanchett, a research consultant at Morningstar Investment Management, said taking out 4% from your retirement accounts might be a good starting place for an initial withdrawal rate. "But revisit this withdrawal amount regularly, ideally on an annual basis, to make sure whatever the target income goal is still achievable," he said.

3. Think tax-efficient income

Think also about the tax efficiency of your retirement income, Blanchett said. Dividends, for instance, can be far more tax-efficient than bonds from an after-tax income perspective if they are qualified -- that is, taxed at a maximum rate 15% vs. 35% for ordinary income. That's yet another reason to hold them in an after-tax account.

But don't think only about generating tax-efficient income in retirement. Consider your withdrawal strategy from a "happiness" perspective. "Ignoring required minimum distributions rules, common tax wisdom suggests drawing from taxable accounts first, then a Traditional IRA, and finally from a Roth IRA," Blanchett said. "I think this makes sense and can definitely increase the available income, but it's also important to have some 'tax diversification' with respect to withdrawal moneys."

4. Social Security is a household decision

For married couples, research the various ways spouses can take Social Security, said Pfau. "The week spent studying this matter could result in hundreds of thousands of dollars worth of extra lifetime Social Security benefits," he said, noting that it's not usually a good idea for both spouses to begin Social Security as early as possible.

Read the original post:
A Checklist for Retirement Savers

Investment losses were steep across the board during the Great Recession, but the downturn was especially hard on retirement accounts.

Pension funds, which primarily pay for the retirements of public-sector and manufacturing workers, lost hundreds of billions. State revenues fell from $1.6 trillion in 2008 to $1.1 trillion in 2009. The California Public Employees' Retirement System, one of the nation's largest, fell more than 25 percent, from $260 billion in October 2007 to $160 billion in March 2009.

[See 10 Places to Retire on Social Security Alone.]

Individual 401(k) accounts were also hit hard. According to Hewitt Associates, the average investor lost $10,000 in retirement savings in 2008. Fidelity reported that investors lost an average of $19,000 that same year. These losses caused many to postpone their retirement in order to save more.

At the same time, the future of Social Security is in serious doubt. According to recent reports, the Social Security disability program's trust fund, a program that supports people with disabilities and their families, will run out of money in 2016. In April, the federal government warned that all of Social Security would be insolvent by 2024 unless drastic changes are made to how the program is administered. Few believe that a deadlocked Congress will make any progress on improvements to the program.

"There's a great amount of skepticism when it comes to Social Security and government benefits," says Dave Vick, president of Vick & Associates, a company that teaches classes on financial planning. "There's a whole group of people who love those benefits who blindly believe it's not going to change. There's a whole group of people who refuse to believe the reports that Social Security is going to become insolvent," he says.

According to Vick and other retirement experts, steep losses in pension funds and 401(k)s are causing Americans to rethink the way they are planning for retirement. New investment instruments are being developed that provide more income security and make payouts in different ways. Without these new instruments, experts warn that many Americans will be ill-prepared for retirement.

[See 10 Ways to Boost Your Social Security Checks.]

Loss of faith in retirement traditions. Jerry Kalish, president of National Benefit Services, a firm that serves as a third-party administrator of pension plans, says the recent downturn has left the majority of Americans--not just older Americans close to retirement--unable to meet their retirement savings needs.

"As a country, we are woefully unprepared for retirement. Defined-benefit pension plans are, for all purposes, gone. A lot of them are frozen, meaning there are no benefits accrued and most are underfunded. It really leaves 401(k) plans right now," which suffered losses during the recession, Kalish says.

Here is the original post:
Investors Seek Nontraditional Retirement-Savings Options

BOSTON (MarketWatch)The best way to save for retirement is to follow the usual advice: save more, work longer, delay Social Security and so on. But experts also say there are many little-known retirement tips worth following, too. Heres a look at 10 such tips that advisers say you shouldnt overlook.

1. Forget The Number

You are more than welcome to go about your life worrying whether youve saved enoughsay $1 million or $2 millionto retire. But thats not the number you should focus on, said Wade Pfau, an economics professor at the National Graduate Institute for Public Policies in Japan and a frequent blogger on retirement issues. There is no such thing as a specific wealth number that will suddenly allow you to retire, Pfau said. The income stream your wealth can support matters much more than how much wealth you have. The income stream supportable by a given amount of wealth varies with interest rates and other factors.

2. Dont rely too much on the 4% rule

Speaking of income, David Blanchett, a research consultant at Morningstar Investment Management, said taking out 4% from your retirement accounts might be a good starting place for an initial withdrawal rate. But revisit this withdrawal amount regularly, ideally on an annual basis, to make sure whatever the target income goal is still achievable, he said.

3. Think tax-efficient income

Think also about the tax efficiency of your retirement income, Blanchett said. Dividends, for instance, can be far more tax-efficient than bonds from an after-tax income perspective if they are qualifiedthat is, taxed at a maximum rate 15% vs. 35% for ordinary income. Thats yet another reason to hold them in an after-tax account.

But dont think only about generating tax-efficient income in retirement. Consider your withdrawal strategy from a happiness perspective. Ignoring required minimum distributions rules, common tax wisdom suggests drawing from taxable accounts first, then a Traditional IRA, and finally from a Roth IRA, Blanchett said. I think this makes sense and can definitely increase the available income, but its also important to have some tax diversification with respect to withdrawal moneys.

4. Social Security is a household decision

For married couples, research the various ways spouses can take Social Security, said Pfau. The week spent studying this matter could result in hundreds of thousands of dollars worth of extra lifetime Social Security benefits, he said, noting that its not usually a good idea for both spouses to begin Social Security as early as possible.

More here:
10 Overlooked Retirement Tips

When Social Security was created in 1937, the average American lived to age 60. Since then, medical advances have added decades to life expectancy. Most 55-year-olds today will see their 82nd birthday.

Problem is, we haven't adjusted the way we work, the way we save, or the structure of our public programs to support these extra years, says psychologist Laura Carstensen, head of Stanford University's Center on Longevity and one of the nation's top researchers on aging.

In her newly updated book, "A Long Bright Future," Carstensen, 58, proposes actions for individuals, employers, and public institutions that, she says, will provide us financial security for the long road ahead.

Her other pet project: the just-launched Financial Fraud Research Center, a partnership with securities regulator FINRA that aggregates data and provides funding to investigate why older people are so frequently targeted by scammers. Her conversation with senior writer Donna Rosato has been edited.

You've spent a lot of time looking into the perceptions of aging vs. reality. What's the biggest myth?

At the top of the list is the Misery Myth, the presumption that older people are lonely, depressed, and discouraged.

In one study we had participants carry pagers and randomly asked them to report on their emotions. Older people reported as many positive emotions as younger people, but far fewer negative ones.

The data are striking on mental health disorders too. Anxiety, depression, and substance abuse are much lower in older people.

Great to know we'll be happier than we expect. But surely money plays into that. How can we make certain we'll be secure in our longer lives?

I cringe when I see headlines about most people not saving enough. Humans are very sensitive to social norms, and this makes people feel comfortable about doing nothing. But there are ways to get around our tendencies.

See the rest here:
Retirement: Financial security for the long road ahead