Protecting Your Retirement:
Don’t Let Your Bubble Burst
It’s not enough these days to earn money – you also want to manage and maintain that money. So if you’re now edging towards retirement, or just crossed over, here are some important things to keep in mind. Each investor is different, so always consider what is best for you.
Avoid the IRA 20% withholding trap.
If you’re leaving your current job, you’ve got a great opportunity to roll your 401(k) into an IRA or a Keogh. However, here’s the rub: if your company makes out the check to you, you’re responsible for making up the missing 20% of the eligible rollover distribution. And, if you haven’t reached age 55, you must also pay a 10% withdrawal penalty.
To avoid this trap, arrange for a “direct” rollover. The distribution check from your old retirement plan is made out in the name of the trustee of the IRA account that will now handle the rolled-over funds. Ask your advisor for specifics on how the check should be made out.
Add long-term care insurance.
Make sure to regularly review your life, health, homeowners’ and auto insurance policies in case of unexpected home catastrophes, unexpected illness or loss of income.
And this is a good time, too, to add long-term care insurance. Most major medical plans do not cover long-term care; Medicare may cover some, but only for a very limited time. And according to the 2006 National Care Cost Analysis, the national average cost for assisted living is $32,000 per year; for nursing facilities it’s $71,000 annually. One medical problem could wipe out your retirement cushion and why risk that!
Do not tap in to your retirement stash.
You’ll discover that the penalties and taxes for early withdrawals can really add up. Even if you’re tempted to “borrow” from your retirement plan for college or other important life events, use other means to obtain that money.
Consider deferring Social Security benefits.
If you tap into your Social Security benefits the minute you’re eligible, you’ll receive less per month than if you wait five years or more. The longer you wait, the more you’ll receive in your monthly check.
Keep up a savings schedule.
It’s a fact: even small amounts, set aside on a monthly basis, can add up over time. If you have payroll deductions, direct deposit or automatic transfers at work, take advantage of it so that the money is withdrawn before you miss it.