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Let the Sun Shine in on Your Retirement

Age of aquarius"This milestone birthday for the Woodstock crowd is a good time for a financial tune-up."

Money's recent article, "Happy 70th Birthday, Boomers!" says that if you're on the leading edge of baby boomers, those Americans born from 1946 through 1964, you're probably not feeling old.

That may be true: researchers say that your generation—which came of age in the 1960s—is healthier and more mentally agile than others previously were at your age.

This good fortune has some financial implications, too. The oldest boomers, who are turning 70 this year, will more likely than not be able to celebrate their 85th birthdays, where their grandparents at 70 had only a 28% chance. More than one in 10 of the oldest boomers will reach age 95—compared with fewer than three in 100 of their grandparents. You've plenty of time left to invest, protect, and enjoy your money. So, Roll Over Beethoven! Here's a financial to-do list that rocks!

To keep from pulling money out of a declining market for living expenses, have at least 12 months of cash on hand to cover day-to-day costs. Also, you should be taking Social Security now, since there's no upside to delaying once you hit 70. However, you shouldn't assume that you need less risk in the rest of your portfolio. If most of your everyday costs are covered by Social Security and other guaranteed income, you can keep your money primarily in stocks, especially if you want to leave an inheritance. If you need your portfolio for living expenses, step it back but don't get out. A good stock allocation for most people age 70 and over ranges from 40% to 60%.

Pretty soon after you turn 70, you will have your first mandatory withdrawals from your retirement accounts. These are known as required minimum distributions from retirement accounts like 401(k)s and traditional IRAs. The clock starts ticking on these the year you turn 70½. You are required to take each distribution by Dec. 31st—except for the RMD for the year you turn 70½, which can be up to April 1st of the next year. If you miss these deadlines, you'll pay a hefty 50% of the money you were supposed to withdraw. Ouch! It's a good idea to have your brokerage or 401(k) plan automate your RMDs. Now that you have all these details set, you can relax and let the sun shine in.

Reference: Money (December 28, 2015) "Happy 70th Birthday, Boomers!"

 

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