Money Matters

Posted November 3, 2008, 3:22 pm in Investing


There is one present out there that millions of baby boomers are trying to decide when to open. Social Security has become the latest game of chance. The question is, should you start taking your benefits at age 62 or wait till 65? You do pay a penalty to start early, but in some cases it could take 12 years or more before you’d be in a loss situation. Financial planners say there’s no easy answer. But they say the time to decide is now. How healthy are you? Do you plan to work past 65? Are you financially prepared for retirement? These are some of the factors to consider. Obviously, you don’t have a crystal ball, but it is important to think things through and have as few surprises as possible.

59 and 1/2 is the age American’s gain access to their tax-qualified retirement savings - such as IRAs, 401(k) plans and other retirement accounts - without having to pay IRS tax penalties for early withdrawals. While you may be tempted to begin drawing down, advisors urge caution, warning that boomers need to manage their retirement savings for a new reality of financial risks.

Boomers need to hedge against the prospects of a long retirement and outliving their money. For boomers faced with creating a retirement paycheck from their accumulated assets, American Express Financial Advisors offer the following tips:

1.  Maintain a long-term investment strategy. Don't underestimate your life expectancy. Americans in their early 60s, on average, can expect to live another 20 years past retirement age, according to Congressional Budget Office estimates, so your investment strategy needs to account for these years. The longer boomers keep savings invested, the better. Tax-deferred compounding is a powerful way to keep savings growing.

2.  Withdraw no more than 4-5%. The best defense against outliving assets is to adopt a conservative annual savings withdrawal rate of no greater than 4-5% of your retirement assets.  Withdrawing too much income from your portfolio, especially in the early years of retirement or in a down market, can put you at greater risk of running out of money

3. Create a cash "bucket." Fill the bucket with the cash that you'll need for the next 2 to 3 years, and keep the rest of your portfolio invested for growth. Every 6 to 12 months, re-balance by trimming from the best performing assets to replenish the cash.

4. Keep your portfolio working. An overly conservative investment strategy can be just as unwise as investing too aggressively.  A well-diversified, balanced portfolio that can produce current income and growth for future needs is vital for a long retirement

5. Prepare for the unexpected. It's always wise to create a financial strategy that accounts for life's little - and big - surprises: a serious health setback, the early death of a spouse, a change in or discontinuance of employer-sponsored retirement benefits.

6. Annuities can help. Consider using part of your portfolio to buy an immediate annuity, which provides you with a guaranteed income stream for as long as you live. (An immediate annuity provides a way to create your own "pension.")



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