There are new rules for 2009 for those of you that have retirement accounts and are subject to required minimum distributions (RMD) rules. Recent Federal legislation will permit those subject to RMD rules to elect not to take the distribution for 2009. This is a one year suspension of the requirement and you will have to resume distributions in 2010. If you are new to the RMD rules and will be turning 70 ½ during 2009, then the initial distribution for 2009 is also suspended.
For many of you this may require action on your part in order to benefit from this legislation. If you are like many of my clients, distributions from retirement accounts are setup as a monthly income stream. Each year this is reviewed to make sure the schedule distributions will meet the RMD requirements. Many of my clients are fortunate in that not all of this income is actually needed, but is only taken to satisfy the RMD rules and avoid the substantial penalty for failing to take the distribution.
For 2009, you can suspend or reduce the retirement distributions to the amount needed. This will also provide a reduction in your tax liability for 2009 since you will not be reporting as much retirement income and thus more money in your pockets. It will also allow you to leave more of your investments in the account and benefit as the markets continue to recover.
Even if your retirement accounts are not that large and the RMD is distributed annually, you may still want to suspend the distribution for the year.
The market of 2008 has raised many questions for investors and retirees. In the days when my father worked pensions were very common. While the pension company may not have expected to be making payments today, 28 years after my father retired, they are and the source of lifetime income for my father. Many retirees today are no longer covered by a pension plan. Most companies have shifted to the defined contribution plan and have shelved or terminated the defined benefit plan. The names of the plans say it all. During my father’s career the benefit was specified and the company had to make the required contributions so the benefit could be met. Today, the contribution is defined and the benefit is unknown.
While the stock markets clearly provide the highest returns over the long-term, they also incur some wretched years, such as 2008. And like my father, retirement years are often lasting into the decades, rather than just a few years. In the event you or your spouse live to be 90, 95, or 105, will your income still be there as well? Every year due to our improving health care system and active lifestyles many individuals are finding they are living much longer than ever expected. When we were young we often had more ‘month’ than we had income. Without careful planning, it may reoccur and supplemental investment accounts may dwindle down to zero long before you are ready to check-out.
There are solutions. But these solutions are complicated and require knowledgeable investment advisors. Not only will the advisor need to know the retirement rules, but they will need to be able to actively manage the assets in the new plan. And you must remember not every plan is the same and not every company is worth doing business with.
Most advisors who hold the CFP credential should have the required experience to assist retirees in this area. Creating an income stream that still requires management and yet cannot be outlived is not easy. There are many steps to be considered. And like all pension income, when more income is needed during the year, getting it from the income stream will not be possible. Therefore, it is vital that some investments are set aside to provide the cash when the expenses exceed the monthly or annual income.
Retirement years should be enjoyed. I am not sure how many retirees enjoyed 2008. Taking steps to provide additional income streams should reduce some of the concerns for the future and the ups and downs the market may prevail upon investors.
If you need assistance managing or creating income for your retirement years, please contact a qualified investment advisor. There are many Certified Financial Planners in our area including myself.
Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.
Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.
Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.