Retirement News : Seniors : Cracking the Retirement Nest Egg

Cracking the Retirement Nest Egg

Date Added: 29-08-2005

Beginning July 1, the leading edge of the nation's 76 million boomers turned 59 1/2 years old, which means they'll face a new set of opportunities, risks and investment decisions that ultimately will shape how they will fare in retirement.

That's because 59 1/2 is the age at which savers can begin withdrawing money from Individual Retirement Accounts, 401(k)s and other tax-qualified retirement savings without paying a 10 percent penalty for early withdrawal.

But just because the money is available doesn't mean the newly eligible should raid their funds.

"Whether boomers are planning to shift into low gear or pursue an active retirement, our advice is to plan carefully, because your investments may have to last for decades," said Craig Brimhall, vice president of retirement wealth strategies at American Express Financial Advisors in Minneapolis.

A typical baby boomer's retirement could last 20 or even 30 years - equivalent in some cases to their entire working life.

"No other generation in history has ever had to plan for this long a retirement," Brimhall said. "Up to 30 years of income is what they're going to need to create from their savings."

And other, nonfinancial issues will affect the monetary decisions that retiring boomers need to make.

"The common financial wisdom is you need retirement income that is 60 to 80 percent of your (preretirement) pay, but that just looks at your income side and ignores your expenses," said Steve Vernon, a retirement consultant at Watson Wyatt Worldwide in Los Angeles. "What will it take to make you happy?"

Do you really plan on hanging it all up after you leave your full-time career?

"Here we have 76 million baby boomers who are approaching the starting gate of retirement," Brimhall said.

"You ask them to get to a starting block, and unless somebody tells them how to run this race, they might not make it to the finish line."

When Paul and Helene Orsulak both turn 59 1/2 years old in November, they'll have an added sense of security about their retirement funds.

That's because they'll be able to withdraw money from their tax-deferred savings accounts without the 10 percent penalty.

"We are planning for retirement, so it did cross my mind that this year we turn 59 1/2," said Helene Orsulak, director of operations at a retail store. "That is a very reassuring thought to me that I could get at the money without paying the 10 percent penalty."

Not that they need the money now. Tapping those accounts is the last resort as far as the couple is concerned.

"If you do that now, you could come up short in retirement income," said Paul Orsulak, a biochemist. "We are looking forward to retirement, and the money being there is an important component of that."

That's the first piece of advice financial planners have for boomers hitting that magical age of 59 1/2.

Michael Busch, a certified financial planner and president of Vogel Financial Advisors in Dallas, said, "People hate paying taxes, and the 10 percent penalty has been a huge incentive for many to not disturb the balances in their tax-deferred accounts.''

With that deterrent gone, "many will be tempted to begin accessing those balances before having made the necessary financial calculations to determine if it is prudent to do so."

The biggest retirement issue baby boomers face is longevity, as medical advances and healthier lifestyles extend their retirement lives for many decades.

That puts a demand on their investment portfolios to produce enough money to sustain them.

"Boomers who were once focused on saving for retirement should start thinking seriously about how they will preserve assets and generate income for retirement," said Craig Brimhall, vice president of retirement wealth strategies at American Express Financial Advisors in Minneapolis.

"Unlike their parents, many of whom had employer-funded pensions, boomers will need to make investment decisions to create their own paycheck in retirement."

That means you'll have to pace yourself. If you take out too much money in the early years, you may outlive your money.

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