Praise for Rollover
PART I: The Gray-Wave Tsunami Has Arrived
76 Million Americans Acquiring a Title They Never Wanted: Senior Citizen
Chapter 1: Defining Boomers: Never Met a Purchase They Didn’t Like
Coming Up a Dollar Short and a Retirement Uncertain
Chapter 2: The New Old: Reinventing Aging
The Vanishing Link: Aging and Retirement
PART II: The New Rules of Retirement
Big Decisions to Make before You Fly the Nest
Chapter 3: Take Charge
If You Don’t Know Where You Are Going, Any Road Will Take You There
Chapter 4: Taking One of Uncle Sam’s Best Deals Ever
Move Your Nest Egg into an IRA
Chapter 5: It Gets Even Better: Roll Your Nest Egg Over into a Roth IRA
A Sweeter Deal from the Uncle
Chapter 6: Your Extreme Retirement Makeover
The Perfect Storm of IRA Opportunity
PART III: Then Was Then . . . Now Is Now
Lost in Let’s Remember . . . Never Again a Retirement Like Your Mom and Dad’s
Chapter 7: Common Retirement Myths
Believe It or Not
Chapter 8: The Retirement Risks You Can’t Control
Making the Best of It
Chapter 9: The Retirement Risks You Can Control
Changing for the Best
Chapter 10: Moving from Accumulation to Distribution
Keeping More than You Spend
Chapter 11: Choose Your Options Carefully
Four Roads to Take: The Pros and Cons of Each
PART IV: Rollover!
IRAs: The Next Best Thing to Retiring in the First Place
Chapter 12: Get on the Inside Track of Your Retirement Plan
Your 12-Step Plan for Retirement
Chapter 13: Challenge the Notion of Retirement by Working
“Working till You Drop”
Chapter 14: Taking Out the Taxman
Dodging the Potholes from Uncle Sam
PART V: Putting Your Assets in the Right Cookie Jar
Successfully Choosing Your Assets Is Half the Battle
Chapter 15: Making the Money Last
Plan to Live Smarter
Chapter 16: Making Risk Your Friend
The Universe of Investment Choices
PART VI: Choosing Your Support Structure
Go It Alone or Hire a Staff
Chapter 17: Who’s in Charge?
The Lone-Gun Slinger vs. Signing on a Posse . . . Plus Don’t Forget Your Legacy
Chapter 18: Storing Your Nest Egg for the Next Generation
Making Yourself a Legacy
PART VII: Your Retirement: Rule It or Ruin It
Running the Last Lap to Win
Chapter 19: Steering Clear of Potholes in the Retirement Road
Murphy’s Law Is Still in Effect
Chapter 20: Rule Your Retirement
Focus on Family, Friends, Faith, and Your Fortune
Appendix A: Retirement Planning Work Sheets
- Put Your Own Retirement Plan Together
Appendix B: Longevity Tables
- How Long Will You Live?
Appendix C: Best Sources Beyond This Book
- More Sources about Boomers
Appendix D: About the Authors
- Get to Know Your Authors
Books/articles from your authors
Key Idea: The financial predicament baby boomers may face in their retirement future
Defining Boomers: Never Met a Purchase They Didn’t Like
Coming Up a Dollar Short and a Retirement Uncertain
I never think of the future—it comes soon enough. —Albert Einstein
There’s a train that millions of baby boomers are getting on and it’s beginning to barrel down the tracks toward retirement. Imagine a short distance away on those same tracks is a stalled truck carrying hazardous cargo such as underfunded pensions, shrinking Social Security benefits, and exploding health-care costs. The pending crash is called the retirement crisis and nearly half of boomers aboard that train are completely unprepared for the imminent disaster.
As boomers step off that train (hopefully before it crashes), most as a group will not possess the financial resources to fuel a full retirement. A full retirement means doing what you always wanted to with similar resources you have now.
In many cases, this means dining in fine restaurants anytime you choose—not surviving on a steady diet of Salisbury steak TV dinners. It means traveling to the Galapagos Islands to stomp around looking at lizards older than you instead of over checking your gas gauge before you depart to Wal-Mart. It means putting down roots in one of those slick retirement communities that feature a hundred never-get-bored activities—not living in your grouchy daughter’s damp basement.
In short, a full retirement is enjoying your time, worry-free.
Grim Retirement Awaits Many Boomers
Baby boomers, the largest, healthiest, and wealthiest group ever to grace the US landscape, never met a purchase they didn’t like. Boomers are noted for purging salary and leveraging appreciation in their starter and move-up homes to pay for cars, college tuitions, and trips. In short, boomers own more stuff than any other group in the nation’s history. There’s a plus side too. Our nation is better off. Boomers propelled our economy to become number one in the world.
Nevertheless, researchers, including Larry Cohen, director of the Princeton, New Jersey–based Consumer Financial Decisions, wonder if boomers, given their spending history, will ever arrive at traditional retirement with any real assets.
“As the group responsible for the explosion of credit in the l980s and l990s, boomers are hardly likely to forgo immediate gratification in their later years,” Cohen said.
He continued, “The trend among boomers will only be exacerbated when they enter retirement age. The convenience of credit card use with its occasional slip into revolving credit, along with leveraging their assets for around-the-world tours or trips into space, will continue as it has from day one of the boomer explosion.
“Most boomers who are not so wealthy and not able to afford the spaceflight type of lifestyle may wind up bequeathing their debt as their legacy instead of the hundreds of thousands that they thought they would accumulate.”[i]
Spend and borrow, spend and borrow—boomers, who will work well into their 70s, will continue to do both. Why expect them to change when they’ve changed the world?
Key Idea: Take the best course of action with your retirement plan
Taking One of Uncle Sam’s
Best Deals Ever
Move Your Nest Egg into an IRA
Don’t get old, there’s no future in it.
Your authors are seeking in this book to steer clear of the potholes and pitfalls that can easily entangle you as you fight to protect the biggest check you’ll probably ever receive: your final lump-sum retirement pension.
You have worked long and hard to build wealth in your retirement savings and want to be double sure you preserve those assets when you change jobs or retire. You have spent a long stretch of your lifetime accumulating your retirement assets. On the brink of retirement, you and your family should not have to lose a large portion of your wealth due to excessive taxation.
Realize that Uncle Sam is not your friend. He is prepared to do taxable damage to your pension plan unless you follow concrete steps. The challenge here is to turn Uncle Sam from a pension-grabbing tax collector into a benefactor of high proportions. If you follow the steps we will outline for you shortly, increasing and preserving your wealth for you and your family will be the best deal you will ever receive from the Uncle.
Otherwise, the IRS at the time of withdrawal and other weak moments is poised to grab 70, 80, or maybe as much as 90 percent of your retirement funds!
What’s with This Term: “Rollover”?
If you’re still confused by the term “Rollover,” don’t worry—it’s one of those lexicon terms in our society that tries to simplify a complicated issue.
In this case, rolling over means to move money from a qualified retirement plan such as a 401(k) to another account. To note, the 401(k) is the most common, but there are others, like the 403(b), a 457 plan, a Keogh plan, a SEP-IRA, a SIMPLE IRA, a corporate pension plan, or a hybrid.
Rules and regulations for 401(k) plans are established by the US tax code and operation of these plans is regulated by the Employee Benefits Security Administration of the US Department of Labor. We are fortunate that most retirement funds are distributed in the same way, usually referred to as the “IRA distribution rules.
” We might add that a rollover is a bit different from a transfer.
When you do a “transfer,” you are retaining your assets in the same type of plan, but you are moving them to a different provider. For example, you might transfer your IRA from ABC Fund Company into an XYZ IRA at your local bank.
When you roll over your retirement account, you are moving it from one type of retirement plan into a different type of plan. An example would be a rollover from a 401(k) into a traditional IRA.
Don’t fret that we’re talking about some of the more complicated sections of the US tax code. We’re going to be making it easy. You don’t have to know HTML computer language to operate your computer, do you?
Our idea is to cut through the difficult stuff and keep the rules simple so you can prevent the IRS from devouring your retirement fund.
Why an IRA?
If you receive a payout from your company because you have retired, resigned, were laid off, downsized, or whatever, rolling over to an Individual Retirement Account (IRA) would definitely be to your advantage in most cases.
We should mention that many people think IRA stands for Individual Retirement Account. It really stands for Individual Retirement Arrangement. The Employee Retirement Income Security Act of 1974 (ERISA) came along and gave all Americans the right to have our own Individual Retirement Arrangement, or IRA.[i]
What the government was figuring with this watershed legislation was that Americans would someday no longer have to be dependent on employer pension plans for retirement security.
The best way to make the government your benefactor is to use the Individual Retirement (Arrangement) (IRA) rollover. This will help you in two major ways. It will continue to maintain your company retirement money in a tax-advantaged status. This is a given.
A direct rollover allows your retirement money to continue to receive favorable tax treatment. You can continue to build your tax-deferred savings when you reach retirement age or change jobs using a method we recommend: a direct trustee-to-trustee rollover.
Second, it will also give you better control over your asset allocation strategy and the distributions you eventually will take from the account. Most employer-sponsored retirement plans offer a limited number of investment options.
In contrast, a self-directed IRA, which means you owe no tax on your earnings until you withdraw, opens up new asset management opportunities. You can invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit, separately managed accounts, and real estate investment trusts, among others.
What an opportunity! The only investments on the forbidden list are fine art, gems, non-US coins, and collectibles.
You can buy and sell your investments in your traditional IRA account with no concern about paying taxes on your gains until you withdraw money from your account.
This open investment policy allows you to customize your holdings to match your retirement goals and meet your risk-tolerance levels, plus keep Uncle Sam outside the door (at least momentarily).
Key Idea: Action steps you should pursue in retirement
Rule Your Retirement
Focus on Family, Friends, Faith, and Your Fortune
I’m retired—good-bye tension, hello pension! —Author unknown
We have covered a lot of ground in mapping out your baby boomer (and seasoned seniors) retirement. Our main objective, of course, has been helping you recognize how your wealth accumulation can be enhanced during the remaining years of your life.
That’s not all.
I hope you picked up the significant role your generation has played in crafting the success of this country we call America. Sure, your generation has been torpedoed with a legacy of consumption and self-indulgence. That’s not all bad, as it propelled our country to be the most successful on the planet.
The media trumpets that the baby boomers have redefined aging. Without exaggeration, these war babies, born from 1946 to 1964, have redefined virtually every aspect of American life.
We believe your main concentration should be on what is really worthwhile. That is your family, friends, faith, and fortune. The fortune part will fall into place if you make sure the first three are in sync in your life.
If what’s really important—family, friends, faith, and your fortune—is marching to the same beat, then retirement will be the time when you will finally find real meaning and happiness in your life. We hope this book gave you a shortcut in getting there. With our summary of tips to follow, we expect you to arrive at a happy retirement that much sooner.
Rule Your Retirement!
Follow the Dots to Make It Happen!
- Create a Retirement Plan: May we mention planning again? Americans who have done a retirement plan have five times more savings than those who haven’t planned for their future, according to the American Savings Education Council.[i]
Do it on paper or on your computer. Figure out how much income you will need when you retire. Then assess how much savings you will need to achieve that goal. Read this article to get a rough estimate:
Then save it to hard copy and begin adding your retirement dreams to it.
- Roll Over Your 401(k) to an IRA or a Roth: Certainly, the scope of this book has been to guide you in making the right moves in preserving and protecting your retirement wealth. We believe you should invest your 401(k) in other financial vehicles as your employment winds down. You should commit your funds to the advantages offered by an IRA and/or a Roth. We believe a Roth is best, as paying taxes up front will defer you from ever paying taxes again. What you accumulate will be all yours.
- Develop a Timetable: You know that feeling when you have things under control, like when coaching a Little League game to victory? It’s the same with retirement; use those years before and even during to put together what you expect to happen and when. Here’s a timetable to gauge your progress as you move toward your retirement goals:
Retirement—20 Years Out
You should be so lucky to have this many years to plan. Your financial future is where you should put your emphasis. You need to start saving as much as you can, as soon as you can. If your employer matches your 401(k) plan, max it out. It’s free money! Begin exploring hiring a financial adviser to assist you. Get comfortable with an adviser.
Do it yourself? Only if you decide it’s the best choice. At the very least, sign up for an account with Vanguard, Fidelity, or a similar service. Put as much as you can in non-risky assets. Use their asset management services and take advantage of knowledgeable people on staff who can give you good advice if asked.
Retirement—10 Years Out:
Your assets are building up. You know full well you’re in the twilight zone of your career. During this period begin looking at your retirement savings vs. your planned retirement lifestyle. Get your “retirement number” (figure 20.1) a couple of pages ahead. Tap all sources of income (pensions, Social Security, personal savings, etc.). Make sure your planned wealth covers your projected retirement lifestyle.
Retirement—5 Years Out:
Here’s a little secret: the happiest retirees are the ones who planned for it. Bring in your significant other if you have one to discuss one another’s thoughts on retirement. Never mind that your cross-fertilization of ideas isn’t perfect. There’s time to get it right. The important thing is to get your family’s ideas on paper initially. Then the real pinpointing of your future can begin.
In choosing the perfect location for your retirement, here are some things to keep in mind.
- Temperature and climate
- Region (state or country)
- Environment (beach, mountains, college town, urban, coastal, desert)
- Economics (cost of living, taxes, jobs, politics, etc.)
- Relatives and friends close by
- Full- or part-time resident (full-time resident or part-time traveling or vacation home)
- Health-care facilities
During your 5-year countdown, you should begin vacationing and researching those retirement spots that are coming up on you and your spouse’s radarscope. Get knowledgeable about the areas you are excited about. As you become savvier on your final destination(s), your plans will begin to gel. Keep adding to your retirement (number). Begin matching up your priorities with your spouse’s. Compromises will be made. That’s okay. Nevertheless, this process can be fun.
Truth be told, the majority of retirees never leave home. Most people opt to age in place, or if they do move, they find a smaller house near their old neighborhood. Home is where the heart is: friends and family.
Retirement—4 Years Out:
Keep sharpening your year 5 commitments. Put away as much as you can and then some. Continue to explore options. Keep your goals upfront, but know your priorities could change. Be prepared to alter your plan. In year 4, you might be asking the question: “What am I going to do in retirement?” Do you have a hobby or a new business you want to pursue? This is the time you really should be thinking about how you’ll keep busy all those days when you don’t have the 9–5 roadblock any longer.
Retirement—3 Years Out:
Keep going strong with all the suggestions offered earlier. Take a vacation to the area(s) where you are planning to retire. Talk to people. Come away with the feeling that this area is right or not quite right. Weigh the pros and cons. Begin to get comfortable with your decisions.
Retirement—2 Years Out:
If you are locked into a large home, consider the fact that your home is going to cost you unnecessary money in retirement. So downsizing might be an option to think about. A smaller space will be easier to care for, and will cut energy costs. That goes for vehicles, boats, and overstuffed furniture also. Some of the items you have accumulated during your “first lifetime” may not be so important now. Get rid of them or unload them on your children.
Retirement—1 Year Out:
Make a last check of your finances. Are you on track with your retirement “number”? Know exactly the savings percent you can take out yearly to avoid outliving your money. You may have to continue working, or at the very least take a part-time job to make ends meet. How about that hobby? Maybe you are geared up to make it another revenue stream. This is an important year for you to completely get your arms around your retirement plan, so that you can make it happen without glitches.[iii] Think about a new business part time where you can get some write-offs.
For those of you who are already retired, no more countdowns. You are already there and hopefully you planned along similar lines to make your perfect retirement happen.
Plan for a Long Retirement
Unlike retirements of earlier generations, which averaged about 5 years, the baby boomers could be in retirement mode for 25 years, with a possibility of staying in retirement up to 40 years. Depends, of course, on age at retirement, family health history, lifestyle, and other factors. Most of us are all living longer. There: we said it again.