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Q's and A's for Your Retirement - Laying the groundwork for the future

Have you started planning for retirement yet? It is not something you can put off much longer-especially if you hope to call it quits before you are eligible to receive full Social Security benefits. Here are several questions to answer as part of an overall process. Q. How much do you need to save? A. The short answer often provided by financial experts is that you need to set aside enough to produce between 70% and 80%, or even 85%, of your current income. But that is an over-simplification. In reality, the amount you must save depends on a variety of factors, including your objectives, projected living expenses, your expected retirement age, health status and the return/risk ratio of your portfolio. Have your personal situation assessed. Q. When do you intend to retire? A. Early retirement may be a dream of yours. But you may have to raise your savings goals or lower your expectations-or both. For instance, if you retire five years early, you might plan on generating enough income to sustain you through, say, 30 years of retirement instead of 25. (These figures are purely hypothetical.) In addition, consider the tax consequences of retirement-plan distributions. Withdrawals made prior to age 591/2 are generally subject to a 10% penalty tax in addition to regular income tax. Q. How does early retirement affect Social Security benefits? A. The earliest point at which you can apply for Social Security retirement benefits is age 62. At that point, your benefits will permanently be reduced to about 75% of the amount that would have been available at full retirement age. For instance, if you were born from 1943 through 1954, full retirement age is 66. The age increases gradually for younger individuals. For those born in 1960 or after, full retirement age is age 67. Q. How should you receive retirement plan payouts? A. This will probably be one of your main sources of income in retirement. Therefore, you should not wait until the last minute to decide how the money will be paid out. In most cases, there are two basic choices: 1. You can elect to be paid in the form of an annuity (e.g., monthly payments for life). There are numerous variations. For example, a joint-and-survivor annuity allows your spouse to receive a portion of your benefit after you die, but it may reduce your own monthly payment. In contrast, a single-life annuity may provide a larger monthly payout, but no benefits for a surviving spouse. 2. You may take a lump-sum distribution of the full amount in your account. The primary advantage is that you can decide how your money is invested and you have complete access to the funds. However, you must pay a tax on the payout in the year of the distribution, unless you roll it over directly into an IRA (or other qualified plan). Q. How should you invest your money? A. For most individuals, the primary objective is to maintain a steady stream of income in retirement. As you near retirement, you should review your portfolio to see if it needs to be adjusted. Of course, diversification is generally recommended for investors. Contact your professional advisers for guidance on these critical issues.

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