ENJOY RETIREMENT WITH LESS MONEY - AARP

ENJOY RETIREMENT WITH LESS MONEY

Throughout the year, AARP hosts online webinars on the issues that matter the most to our members. The following are answers to questions from members who have attended our webinars on "Enjoy Retirement with Less Money."

Investing

1. What do you think about variable annuities?

A: Variable annuities are, for some individuals, a suitable product to achieve their investment and long-term retirement income needs. You should carefully evaluate any financial product and do a background check on the person selling it.

2. Will investing in general bonds be wise at this time?

A: Bonds are, for some individuals, a suitable product to achieve their long-term investment and retirement income needs. Many individuals focus on the short-term performance of bonds versus stocks. They should instead consider both of these as long-term investments.

3. What's a reasonable fee to pay a financial adviser as a percentage of portfolio?

A: Anyone charging a fee to manage a client's portfolio should be registered as an investment adviser or a representative of one. Investment advisers receive compensation in a variety of ways, including as a percentage of portfolio. Rates range widely, but are usually between 0.5 percent and 2 percent, depending on the services offered.

4. Will the RMD (Required Minimum Distribution) requirement for Individual Retirement Accounts be waived for 2009? That is the one taken in 2010.

A: An IRA account owner who turns 70? in 2009 would have been required, in the absence of the 2009 RMD waiver, to take his or her first RMD (the 2009 RMD) by April 1, 2010, and then take his or her 2010 RMD (the second RMD) by December 31, 2010. The Worker, Retiree, and Employer Recovery Act of 2008, however, waives the first RMD for account owners who turn 70? in 2009; it does not affect RMDs required for 2010. Therefore, the account owner who turned 70? in 2009 would still be required to take the 2010 RMD by December 31, 2010.

5. Is it safe to get into a 401(k) or an IRA in this present economy? And if so, what would you recommend?

A: While we cannot provide any investment advice or service, we can provide information about retirement savings plans such as 401(k)s and

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IRAs. The safety of these plans is related to where the investments are made. For example, if a worker invests his or her 401(k) contributions entirely in U.S. government bonds, those investments would generally be considered safe. However, if those contributions were all put into foreign equities, they would be considered less safe, as the potential to lose value is greater. So, the plans themselves are generally very safe ways to save for retirement, with the risk coming from where the investments are made.

6. When you mention a 4 percent annual withdrawal, are you referring to principal only or principal plus earned interest?

A: A withdrawal rate is based on the account balance in total, as the account either grows or shrinks due to market fluctuations.

7. On the one hand, we are being advised not to put all our eggs in one basket, but on the other, we are being advised to bundle our insurance policies. Given the apparent current fragility of insurance companies, is the latter advice still the most secure/reliable path to take?

A: The types of items you would insure under bundled policies -- such as home, auto, and liability -- are not investments. So, your payments are generally not going toward building an account with funds for some future purpose. Rather, they are for insuring items against loss. Therefore, bundling may make sense. For investments, including products such as annuities purchased from an insurance company, diversification is generally a very wise allocation strategy.

8. I retired two months back and moved my 401(k) to an IRA account. Any suggestions on how I can invest it to create some income from it?

A: While we cannot provide any investment advice or service, we can provide information about retirement savings plans such as 401(k)s and IRAs. If the investments in which you have placed the account funds are growing faster than inflation, the positive difference could be used as income. Most investors, however, must also draw on the principal for retirement income.

9. If a person at age 75 has about $300,000 in savings and is earning about 2 to 5 percent interest on investments, the 4 percent question again -- or can I think about spending down?

A: A withdrawal rate is of the account balance in total. As the account either grows or shrinks due to market fluctuations, the withdrawal rate would apply to the entire account balance.

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Retirement

1. Is there any real value to selecting another country to retire to, financially speaking, to offset the recessionary blows to a stock portfolio, pension, Social Security, and any other retirement assets?

A: There are some individuals who find that retiring in another country makes financial sense. To learn more, check out the resources at family/housing/articles/links.html

2. I retired two and a half years ago. I did everything you suggested before I retired and felt comfortable that I had sufficient funds in both fixed and variable income to enjoy retirement. Well, you have not addressed what happened recently. I lost all my variable stock funds and cannot find a part-time job. My house is upside down and my prospects are dim. What now?

A: If you have exhausted all other income options, including work, you may want to explore various benefit programs. AARP has a site that can help you get started. partner_id=22&subset_id=49

3. I am 68 and depend on Social Security and my IRA for my income. My IRA has been depleted by half in the past year. My financial person tells me that at the rate I am withdrawing, I will be broke in six years; however, I need all of the income at the present time. What is the best route for me to take?

A: Since you are 68 and may very well have many more years to enjoy retirement, it's probably wise not to spend at the current rate if it would deplete your IRA in just six years. You might consider reducing expenses further if possible, looking into part-time work, and checking all the benefit programs for which you might be eligible.

4. Is there a formula for determining how much money I will need at retirement?

A: How much income an individual needs in retirement can differ widely, depending on the person's lifestyle. AARP provides a quick glance at what you may need at . html

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5. I am 62 and recently laid off. Should I use my 401(k) as income to get me closer to 65 before retiring and collecting Social Security?

A: Decisions about when to begin withdrawing money from a retirement account such as a 401(k), and to claim Social Security, are highly individual. You could withdraw your 401(k) funds now without penalty. However, AARP strongly recommends that you calculate if you can afford to retire.

Social Security

Spousal Benefit

1. When a person dies, does that person's Social Security fully go to the surviving spouse and, if not, how much does the surviving spouse get?

A: When one spouse dies, the surviving spouse is able to receive benefits based on the deceased spouse's earnings record. Benefits can also be paid to unmarried children age 18 and younger. Assuming you die first, the amount your spouse will receive depends on whether you claimed your benefit before dying and whether your spouse has reached full retirement age before claiming. For example, if you did not receive benefits before your death, your surviving spouse will be eligible to receive 100 percent of your benefit amount at full retirement age. At present, there are about 5 million widows and widowers receiving monthly Social Security benefits based on their deceased spouse's earnings record.

2. My husband is 73 years old and receiving Social Security. I am 62 and plan on retiring when I am 65. Are we both eligible to receive the full amount of Social Security benefits that is due each of us, or will one of our benefit amounts be reduced?

A: Your amounts will not be reduced; your benefits are calculated first independently. You are eligible for your own retirement benefit and for a spousal benefit. If taken at full retirement age, a spousal benefit enables the lower-earning spouse to receive half of what the higher earner's benefit would be at full retirement age. When you file, Social Security will determine which is higher and you'll receive the larger benefit. Either way, your husband's benefit will not be changed.

3. Once my wife and I start collecting Social Security, how much will each of us be able to earn monthly without paying taxes on our income?

A: Regardless of age, some people who get Social Security will have to pay taxes on their benefits. You will have to pay federal taxes on your

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benefits if you file a federal tax return as an individual and your total income is more than $25,000, or if you and your spouse have total income exceeding $32,000. Less than one-third of beneficiaries pay taxes on their benefits.

4. When I retire at full age and if I still work, will my benefit be reduced?

A: If you are under your full retirement age for the entire year, Social Security deducts $1 from your benefit payment for every $2 you earn above the annual limit of $14,160 for an individual. In the year you reach your full retirement age, it deducts $1 in benefits for every $3 you earn above $37,680, but only for earnings in the months before you reach your full retirement age. After you reach full retirement age, there are no limits on your earnings.

5. Does that mean that both my wife and I can make $14,160 per year, totaling $28,320? We are both 62 and collecting about $35,000 a year on Social Security.

A: Yes, each of you can make up to $14,160 per year. Social Security will deduct $1 from your benefit payment for every $2 you earn above the annual limit of $14,160 for an individual.

6. My wife is in education and she is not eligible for Social Security, but teacher retirement. Will that affect my Social Security benefit?

A: No. Your benefit is based on your own work record and how old you are when you claim.

7. If both spouses draw Social Security and one spouse dies and the surviving spouse's Social Security benefits are more, what happens to the deceased spouse's Social Security balance?

A: Any unused benefits go back into the Social Security trust fund.

8. I'm 60 years old and on Social Security disability. My wife is 55 and she quit her job to take care of me. When can my wife apply for Social Security?

A: In general, your spouse may qualify for benefits if she is caring for a child of yours who is younger than age 16 or disabled. She may also qualify if she is 62 or older. Contact the Social Security Administration at 1-800-772-1213 for additional information.

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