7 steps to take at age 59½
Each year, a few months before
your birthday, Social Security sends you an
estimate of benefits. It includes your earnings
record. Look this over closely and make sure
there are no blank spaces for years in which
you know you were employed. If there are,
or if there appear to be other errors in the
amounts listed, contact Social Security toll-free
at (800) 772-1213 or through its Web
The same form shows a calculation of annual benefits
once you start collecting. It's worth the trouble to compute your own benefits
just to make sure that Uncle Sam didn't get his thumbs crossed. The government
offers calculators to help you. Using one of these also will let you figure out how much you'd make
if you earned more or worked longer.
Maximize your savings. Conventional wisdom has said that people a
few years from retirement should move money
out of stocks and into something safe, such
as bonds. These days, with interest rates
in the 3 percent to 5 percent range, this advice seems
too conservative, increasing the likelihood
that you'll run out of money. So for many
savers, that means making a new plan. Jeff
Gage, a Washington, D.C.-based financial adviser
and president of FCA Rochdale, urges his clients
to create a spending plan that calculates
not only what they will need to live, but
also what the potential tax bite is likely
to be along the way. "Just changing one
variable can make a dramatic difference over
30 years of retirement," Gage says.
the tax bite may require sophisticated advice, but a good place to start is by
dividing your savings into three pots: money on which the taxes have been paid,
money on which only capital gains will be due, and money on which ordinary income
taxes will be owed. Gage says breaking down your savings in this way makes it
easier to decide a number of things, including whether paying taxes now and moving
money into a Roth IRA makes sense.
Roth or regular? Roth
IRAs, and the new
Roth 401(k)s, which are now
available from some employers, are funded
with after-tax dollars, but they grow tax-free.
They also don't require minimum distributions
at age 70½. Tax laws
let you pay the taxes owed at your current
tax rate and convert the assets in a regular
IRA to a Roth IRA in a process called a Roth
conversion. Generally, converting to a
Roth is a good idea if you anticipate that
your income won't fall much after you retire.
Until now, many people
couldn't have Roth IRAs because of their strict income limits, but Roth 401(k)s allow high earners to escape that limitation. "This can be a huge advantage,"
says Michael Hatlee, manager of retirement services with the Chemung Canal Trust
Co., in Elmira, N.Y.
In 2007, all
workers over 50 whose companies offer the plan will be entitled to contribute
up to $20,500 to a Roth 401(k). Roth 401(k)s also
will be available to self-employed individuals. Plenty of financial Web sites
help you determine whether a Roth makes sense for you, including one at dinkytown.net.
much will it take? Look hard at your budget and calculate
how much you're likely to spend after you're no longer working full time. Bankrate's budgeting calculator can help you figure out your future expenses. Don't forget to add in extra health
costs. In 2005, the average 65-year-old spent $4,193 annually on health care,
according to the Bureau of Labor Statistics.
Take complete inventory. Compute the total amount that you're likely
to have to fund your retirement. With the
time so close, it's not just a wild guess
anymore. There are some calculators that will
help you do this, including Bankrate.com's 401(k) retirement savings calculator. Many of
these calculators not only estimate savings
and Social Security, they also allow you to
factor into your plan one-time windfalls such
as inheritances and lump-sum pension distributions.
And you can calculate how much working at
a part-time job will extend your retirement
savings. If these calculators don't do the
job, talk to your employer. Some employers
have access to extremely sophisticated planning
tools, so ask your personnel department if
you can use one.