Many folks get to retirement and don’t know what their options are. They don’t know who to discuss these issues with and they often make decisions without regards to the following:
- Ongoing retirement fund management fees
- Investment options
- Taxes
- Oversimplification/overly complicated retirement options
- Distributions
- Mortality credits
- Early withdrawal penalty
- Loans
- Required minimum distributions
- Creditor protection
- Sequence of returns problem
- Inflation
- Liquidity
- Social Security benefits
- Health issues
Retirement fund management fees. Within the last five years, newly designed fixed indexed annuities offer safety and a very good rate of return, with no ongoing fees, as you would experience with a 401(k) or IRA.
Investment options. There must be well over 6,000 different places to invest your retirement money. Wall Street money managers want to manage your money for your lifetime and beyond. It can create headaches and heartaches for those who do not know how to evaluate these options. In my experience, I have found that annuities offer a good choice here. An insurance annuitant is guaranteed never to lose money, and you can receive guaranteed income you cannot outlive. Plus, the insurance company will contractually double your income if you need to use a long-term-care facility. And even though the money is in your personal IRA, your spouse can benefit from the income and the long-term care provisions just the same.
Taxes. When you are within 10 years of retiring, you would be wise to consult a CPA who specializes in tax planning. This is so you can learn how to keep Social Security benefits from becoming subject to income tax. This will save at least $5,000 or more each year.
Over simplification/excessive complexity. Investors having trouble keeping track of multiple retirement accounts, including defined contribution plans and traditional IRAs may want to “simplify” their financial lives. Their tendency is to create one IRA and roll all money into one place. This sounds good, but doesn’t work very well. Many times you will want to turn on income, but you don’t want all your money coming as income, you may want some cash for liquid needs. If you have separate accounts, you can turn on income with one or two of these accounts, or not all. Carefully examine your future years as you make these decision. Using annuities, really keeps your life simple — there’s no more market risk, yet growth keeps well ahead of inflation.
Distributions options. A person can take earlier-than-age-59.5 withdrawals and not pay the 10 percent penalty due on early withdrawals by using tax code 72(t). You can also convert to a Roth IRA and after five years withdraw the principal without having to pay the 10 percent penalty for early withdrawal.
Mortality credits. As you get older, the multiplier used to calculate your monthly income gets larger because you 
will die sooner. You get the “credit” for living longer. There mortality credits are more important than any rate-of-return.
Early withdrawal penalty. Sometimes you will have a penalty when withdrawing retirement money earlier than age 59.5.
Loans. Some retirement plans allow borrowing. Usually the amount is one-half the account, or $50,000, whichever is less. One advantage in borrowing from yourself is that the borrowed amount is no longer subject to market risk, and you are paying interest right back to yourself. Make sure you know the rules for borrowing from retirement funds, because several laws have changed over the past several years.
Required minimum distributions. When an owner of an IRA account reaches 70.5, they are required to start taking retirement income based on life expectancy. This amounts to about 5 percent of the total value in the IRA. However this 5 percent will grow each year as you become older. The government does not want your money to go untaxed forever. Consider converting the IRA money to a Roth before reaching this age to avoid this problem. In addition, required minimum distribution issues are accentuated upon your death. Your beneficiaries will receive this money either taxed, or if you have converted this money to a Roth IRA then the distribution will be taxed over a lifetime. Your children can S-T-R-E-T-C-H this distribution but when you calculate the taxes paid over a lifetime it is a huge number! Work with a qualified professional who knows how the system works in order to make the best possible plans for your beneficiaries,
Creditor protection. Federal law protects the assets in defined contribution plans (such as 401(k)s) from creditors in case of a lawsuit. But, since IRAs are governed by state law, protection for an IRA in case of a lawsuit varies.
Sequence of returns. Be aware that you will run out of money very quickly if you start to take income at the same time the market loses money. Timing is very important when dealing with retirement funds linked to Wall Street.
Inflation. Regardless of what the Consumer Price Index says, inflation is real and your money is losing value every day. While some items will not cost more over time, others will double in price. I suggest you keep your own list of goods and services and track it how inflation affects the prices for these items yourself. You will see inflation growing at a very steady pace every year. You must have a solution for this quiet money killer.
Liquidity. Emergencies will happen. It is important to have some cash on hand for these events, then you don’t have to disrupt retirement income as the years come and go.
Social Security benefits. Ninety-two percent of all retirees are totally dependent upon these benefits. You must learn what these benefits are ten years before you will need them, or risk losing $40,000 to $100,000.
Health issues. Can you think of anything that does not change? Weather? Attitudes? Relationships? Weight? Everything changes, including your health, especially as you age. Plan to get organized so whatever may happen, you are prepared and have a plan for taking care of your health issues as you get older, including the possible need for long-term care. Not doing so means you risk losing all your retirement funds to care facilities or home health care.
