Blog

RMDs or Required Minimum Distributions are the amounts that the federal government requires individuals to withdraw from their retirement accounts annually after they reach the age of 70½. You can take out more than the minimum from your retirement account, but if you take out less, you will be subject to a federal penalty. This is to ensure that the retirement accounts aren't used to simply defer taxes on accumulated assets and then leave them as an inheritance. The RMDs are intended to spread out the distribution of your IRA or plan assets over your lifetime.

The solution to retirement spending isn’t easy. There isn't one perfect solution for everyone. Three potential approaches include immediate annuities, a total income approach or a total returns approach. While each of these solutions have their pros and cons, we strongly favor the total returns approach in most situations. Here's a look at each of these and their pros and cons.

Top Retirement Planning Mistakes

Here is a list of what I'd consider the top mistakes people make for their retirement planning:

To follow up on my latest post regarding retirement and the importance of planning ahead, there are a number of things to consider. The biggest challenge is to create a lifelong paycheck, one that allows you to live the lifestyle you envision for yourself in retirement. To accomplish this, it should be structured so that it lasts your (or multiple) lifetime(s), is paid on a regular basis, takes inflation into account and is relatively stable. Each one of these factors could be a whole discussion on its own.

One of the most difficult aspects of retirement, is the mental switch required to go from a saving mentality to a spending plan. After a lifetime of putting aside money for the future, it's not easy to start spending down that savings. When they're no longer receiving a regular paycheck, many retirees find it hard to transition from saving to spending. The biggest concern is making sure they don't outlive their savings. Fear of other outside factors also play into this concern like investment risk, health issues, medical expenses and caring for family members.

The most recent Dalbar study continues to show that people who trade in their 401(K) plan, lose ground when compared to those that don’t.

 I find it fascinating to watch the Illinois budget fiasco being played out like a game of chicken between the Governor and the Senate. The Senate just overrode the Governor's veto of a tax increase. While this is good to stave off a downgrade to junk status, it is not so good for the citizens of the state. While yes, more money is available to pay for services, there is also less money that people can spend on what they need.

That’s a very common assumption that many people make. Based on the idea that taxes will go down over time, they decide to take as little as possible from retirement accounts and spend their taxable money first. For some people that works fine, but for many it becomes a tax trap.

Wilshire Consulting calculates the funding ratio for State sponsored retirement plans every year. For the year ending June 30, 2016 (the most recent) the average funding ratio, or the amount of pensions that have the money to pay, dropped to 69%.  What this means is that either taxes will need to be raised dramatically to make this up or future pension benefits dramatically curtailed.

Underfunded state pensions are a threat to taxpayers everywhere in terms of probable higher future tax burdens and lower future services. In California, they talk about a "service bankruptcy". That is where all the tax dollars at some future point go to paying benefits for retirees with no money left over to spend on any of the services government provides. All of the future taxes will have to go to pay for promised pensions if nothing changes.