Newly Retired? Fresh Ideas for Managing Your Retirement Income

As a new retiree, you may be wondering how to manage your retirement income.  Last month, president of Charles Schwab, Carrie Schwab-Pomerantz, published an article titled “Newly Retired?  Fresh Ideas for Managing Your Retirement Income”.  This article hits key points of 1) Which accounts and investments you could draw from first, 2) Options for rebalancing your portfolio once you start to withdraw, and 3) Considering taking your required minimum distributions to avoid penalties (if 70 ½ or older).  Click here to read the entire article, or continue reading for a summary below.
 
Before jumping into the discussion of possibile ways to manage your retirement income, keep in mind the following essentials:
 

• At the point of retirement, you may want give very careful thought to your asset allocation.  Mainly, you may not want to take on as much risk in your investments as you did when you were younger and still working.
• Aside from your Social Security, a pension, real estate investments, or other sources of income, you may want to figure out how much money you could need to withdraw from your retirement accounts.
• Your most tax-efficient investments may need to be kept in taxable accounts, and your least tax-efficient investments may need to be be kept in tax-deferred accounts.
• Maintaining well-diversified portfolios of many types of investments including stocks and bonds could possibly help protect against inflation over your many years of retirement.

Listed below are the strategies outlined in the article “Newly Retired? Fresh Ideas for Managing Your Retirement Income”, in order of which you could consider first.  Please read the full article for more complete descriptions of each strategy:

1. Draw Down Principal from Maturing Bonds and CDs:  The first strategy you could use would be to create a short-term ladder of bonds or CDs, and then you could tap the principal of each bond as it matures.
2. Take Your RMDs if You’re 70 ½ or Older:  Once you reach 70 ½, the IRS requires you to take a yearly distribution from many retirement accounts, known as a Required Minimum Distribution (RMD).
3. Sell Overweighted and Lower-Rated Investments from Your Taxable Accounts:  Since withdrawals from taxable accounts are taxed as capital gains rather than ordinary income, these could be the next accounts from which to draw retirement funds.
4. Sell Overweighted and Lower-Rated Investments from Your Tax-Deferred Accounts:  Generally, your tax-deferred accounts could be the last place to look for retirement income.

Please note:  This post is for informational purposes only and is not intended as advice.  Since everyone's situation is different, please consult a professional before changing your portfolio.

The "Backdoor Route" to Roth IRAs

High earners may run into issues trying to contribute to IRAs or trying to receive tax deductions for IRA contributions.  If you fall into this category, watch this video from WSJ.com to find out the "Backdoor Route" to contributing into a Roth IRA to help save for your retirement.

IRA Quiz

What is the difference between a traditional IRA and a Roth IRA?  How long do you have to make 2013 contributions to your IRA?  How much can you contribute to your IRA?  Take this quiz to find out these answers and more about the basics of IRAs!

 

1) What does IRA stand for?

a. Initial Retirement Adjustment
b. Individual Retirement Account
c. Internal Revenue Association

2) A traditional IRA is a retirement account which...

a. Allows contributions from before-taxed income, so withdrawals in retirement are taxed.
b. Allows contributions from after-taxed income, so withdrawals in retirement are not taxed.
c. Is not taxed at all.

3) A Roth IRA is a retirement account which...

a. Allows contributions from before-taxed income, so withdrawals in retirement are taxed.
b. Allows contributions from after-taxed income, so withdrawals in retirement are not taxed.
c. Is not taxed at all.

4) What is the deadline for making 2013 annual contributions to either a traditional or Roth IRA?

a. December 31, 2013
b. April 15, 2014
c. August 1, 2014

5) What is the maximum annual amount the account holder 49 years and younger can contribute to either a traditional or Roth IRA for 2013?

a. $2,500.00
b. $5,500.00
c. Any amount

6) What is the maximum annual amount the account holder 50 years and older old can contribute to either a traditional or Roth IRA for 2013?

a. $6,500.00
b. $10,000.00
c. Any amount

7) What is the minimum annual amount the account holder (any age) can contribute to either a traditional or Roth IRA?

a. Any amount, up to the maximum
b. $1,000.00
c. $5,000.00

8) At what age can the account holder start making contributions to either a traditional or Roth IRA?

a. Any age, as long as he/she is earning income
b. 18 years old
c. 21 years old

9) At what age must the account holder stop making contributions to a traditional IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age limit

10) At what age must the account holder stop making contributions to a Roth IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age limit

11) What does RMD stand for?

a. Rollover Money Discount
b. Roth Maximum Disbursement
c. Required Minimum Distribution

12) At what age is the original account holder required to take an RMD from a traditional IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age requirement

13) At what age is the original account holder required to take an RMD from a Roth IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age requirement

14) What is the deadline for taking an initial RMD for 2013?

a. December 31, 2013
b. April 1, 2014
c. August 15, 2014


Answers:
1) b 2) a 3) b 4) b 5) b 6) a 7) a 8) a 9) b 10) c 11) c 12) b 13) c 14) b

Please visit the Official Website of the IRS for more information.