“The question isn’t at what age I want to retire, it’s at what income.”
- George Foreman
Running out of money in retirement must have been one of George Foreman’s biggest fears. Like George, pre-retirees ponder how do they replace their income when no longer working. How much income will it take to live in retirement and will their savings and investments last?
Answering questions like these is one of the things that make our jobs as financial advisors so rewarding. Through thoughtful and detailed financial planning, we often have discussions with retirees as to the sources of income, when and how much money to take from retirement plans and the use of other assets. Always, there is the question of how much can you spend to ensure you don’t run out of money?
One of my early financial planning heroes was Loren Dutton, known as the Father of Financial Planning. In one of his books, I remember reading that there are three stages of retirement. First, it’s the “go-go years”, then the “slow-go years” and lastly the “no-go years.” In early retirement most people are active and want to do all the things on their bucket lists. By age 75 or so many people will travel less, stay closer to home and family where they may find hobbies, activities, and contentment. The unknowns are health and aging in later life, those no-go years. From a financial perspective the last years of life can be the most expensive to fund. Planning considers all stages of life and funding sources.
IRS RULES – Required Minimum Distributions
As we close 2021, I thought it might be helpful to talk about some changes that are coming in the Required Minimum Distributions (RMDs) from IRAs and other retirement plans. There are some new rules for retirement accounts. The U.S. government recognizes that Americans are living longer therefore life expectancy tables have been extended. In 2022, those changes will be reflected in the amount of money that retirees must draw from their retirement accounts at different ages. These new numbers come with IRS formulas that calculate RMDs. The amount is based on the retiree’s age and the December 31st retirement account values. You can review the IRS website site here for detailed information on the tables and rules. www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions.
In 2019, the Secure Act changed the way beneficiaries must take the money from their inherited IRAs. If you were not a spouse and received an IRA inheritance from someone who died after December 31, 2019, you can let the money grow for ten years. You must distribute the entire account by December 31st of the tenth year after the death of the original account owner. If you were a spouse, you simply treat the inherited account as your own. The Secure Act did away with the Stretch-out IRA rules which mandated that all beneficiaries take income according to the IRS guidelines. For people who have inherited or beneficiary IRAs and were already taking distributions, they must continue taking them. The ten-year deferral rule does not apply to older Beneficiary IRAs. (Source: IRS.gov).
Birthday Rules: The Secure Act raised the age of mandatory RMDs to age 72 – up from 70 ½. If you turned 72 before July 1, 2021, you must take your RMD before December 31, 2021. If your birthday was after July 1, 2021, you have until April 1, 2022to take your first required minimum distribution.
The IRS tax rules change frequently. It is important to ask your Mercer Advisors financial planner for help if you need clarification regarding your personal situation.
What a year it has been! We’ve not only survived 2021, but many of us have thrived in a world that seemed a bit surreal. We are learning to cope, adjust and find ways to reinvent our personal and professional lives. The McGee team of Mercer Advisors is very grateful for the opportunity to serve you as your trusted advisors. We wish you all a joyful holiday season and the very best in 2022.
Judith McGee, L.H.D., CFP®, ChFC®
Executive Vice President and Senior Lead Advisor
Please note that our offices will be closed Dec. 24, 31 and January 3 for the holidays. If you need immediate assistance during December 31 and January 1, please contact the Client Solutions Team at 1-855-389-0550.
Source: Broadridge Investor Communication Solutions, Inc.
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