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Near Retirement

Retirement is coming into focus now. The outlines are becoming apparent and if you’re like most people, you have started giving your post-retirement lifestyle some serious thought.

Where to LiveWhat to DoWorksheetEarly Retirement
  • Where to Live

    Where you live during retirement will impact your financial system in some way. Many of us envision living in a foreign country or in a quiet cabin in the mountains or in a 2nd home on a golf course. Actually most Americans choose to retire near their current home, mostly in part to be near family and friends or because of the strong community ties that have been established.

    If you are thinking that you’d like to go somewhere else, there are many issues to consider:


    Any relocation expert will advise you to spend time in a region you are considering moving to before you make such a commitment. And spend that time in both the “good” and “bad” seasons to get a true picture of what it is you might be getting into.

    Mobile Lifestyle: Perhaps the RV lifestyle is for you? Spending your time driving around the country visiting all those places you always wanted to see or camping in favorite parks. Perhaps you’ll purchase a condominium on a cruise ship that travels around the world making various ports of call. For more on this lifestyle visit:

    Retirement Communities: There are so many options here. In addition to the traditional 55+ communities you have heard about, newer themed retirement facilities – based on common interests, faith, former military, etc. – are becoming increasingly popular. Others offer graduated living facilities at every level.

    These options and opportunities are not all inclusive and you can go on line to explore the realm of the possible. Some sites to visit include:

    College Towns: many appreciate the vibrancy of living in a college town particularly the benefits of free and inexpensive cultural activities, educational opportunities and dynamic environment.

    There’s No Place like Home: You may decide that staying home is for you. Perhaps you’ll remodel that home to make it more adaptable to your retirement lifestyle. Some communities have developed programs to assist retired individuals to stay in their homes by providing essential services as they age. This “virtual retirement community programs” deliver a range of services to their members as they age from home repairs to health care.

  • What to Do

    When we think of retirement, especially for “other’ people, we think of sipping tea on a swing, cooking for grandchildren, waking up late and, in general, taking it easy. Well, that was another time and place for the most part! Most retirees find themselves busier then when they were working full time. Your opportunities and options are huge:

    Working: Many retirees do continue to work at least part-time. Some do so for the income, others for the benefits such as health insurance, and still others would be bored without a job to go to! If you want to continue working in your “retirement,” but you need a change, you may want to evaluate how your skills could be used in a new job. Or you may want to try a new career. If you think about it, your new career could last another 10, 20 or even 30 years—why not do something you enjoy?

    Learning: Whether it is learning a new language, taking up art or gaining new computer skills, there are many learning opportunities. Community colleges often offer inexpensive courses, as do the Adult Education departments of many larger public school districts. Programs such as Elderhostel, an intergenerational program, ( have thousands of offerings.

    Hobbies: If your hobbies have been neglected because you have been too busy working, now is the time to reengage. Or you can try something new! Keep in mind that some hobbies can get quite expensive, so you will want to keep costs in mind.

    Fitness and sports: Research has demonstrated that you can you stay healthier through regular exercise, and are likely to be happier and have a better quality of life as well. Whether it’s tennis, walking, dancing, swimming or yoga, find a way to incorporate regular exercise into your life. It’ll help your mental and physical health.

    Travel: You may dream of a trip to Hawaii or Europe, or perhaps you would just like to see more of the United States. Opportunities can include family travel with your children or grandchildren, educational travel, going back to your ancestral homeland, tours organized for spiritual pursuits or even a trip with a volunteer organization. If you don’t have a big budget for travel, find out whether you can hook up with an organization as a tour guide, or check out travel guides focused on budget travel at your local library or online. Discounts for Retirees can be found through your memberships or affiliations (AARP, Retired Military, etc) or on such sites as Travelocity, Expedia and other Retiree travel organizations.

    Volunteering: You can be as busy as you want to be in retirement, and volunteer opportunities are one of the reasons why. Schools, government agencies, political, nonprofit and religious organizations are always looking for dedicated volunteers. VolunteerMatch ( and other Web sites can help you find the right niche. If you are really adventurous, consider both volunteering and travel through The Peace Corps, an organization that has stepped up efforts to recruit retirees. ( or

  • Worksheet

    What do you want your retirement to look like?

    Retirement is about a lot more than crunching numbers. Using this worksheet as a guide, set aside some time to imagine your retirement future. Simply print our Retirement Goals Worksheet, and then take your time thinking about and writing down your answers and dreams. (There are no right or wrong answers – and no grades!)

    Your spouse or partner also should complete this worksheet separately; then you can compare and discuss your answers with each other.

    Click here to view the Retirement Goals Worksheet

  • Early Retirement

    Early Retirement Options with Pension Plans and IRAs

    So, you want to bail out of the rat race early? Good for you. But, what are your options with your pension plans and IRA’s. Fortunately, with a little advanced planning you can avoid those gruesome premature tax penalties usually inflicted on early withdrawals. In general terms, an early withdrawal is any withdrawal before age 59 ½. The penalty is a flat 10% of the amount withdrawn.

    Miscellaneous and Hardship Exemptions
    First, there are exceptions to the penalty tax for early withdrawal due to death, disability, and first time home purchase, medical expense, unemployed person’s medical insurance, and higher education expense. Except for the disability exception, which has a very strict definition, these exemptions usually don’t fit the needs of an early retiree for meaningful amounts of steady income.

    Life annuity payout
    If your qualified pension plan payout is in the form of a life annuity, it doesn’t matter how old you are, you won’t be subject to the penalty tax. But, many profit sharing, 401(k), or defined contribution pension plans may not offer an annuity payout as a termination benefit. Even if they do, annuity payments may not offer the flexibility and benefits available with an IRA rollover.

    Separation from service after age 55
    If you were between age 55 and 59 ½ when you separated from your employer, you may qualify for a little known exemption. Your qualified pension plan could make payments to you in any amounts you desire without penalty. (This won’t work with IRA’s and you won’t qualify if you were under age 55 when you terminated even if you leave your account in the plan until you reach 55.)

    Annuity Schedule Payments
    Perhaps the most useful exemption for many early retirees are offered for IRA’s under what is often referred to as “Section 72(t)” arrangements. You may calculate payments under three different methods that offer lots of flexibility to meet your needs. But, beware. Once you begin a series of payments, you are committed until the later of: age 59 ½ or five years of distributions. So, if you begin the program at age 58, you must continue until age 63. And if you begin at age 42, you must continue withdrawals until age 59 ½. Any variation from your selected schedule will result in penalties on all previously withdrawn funds and interest! If you have been in the program for a number of years, this penalty and interest could be a truly crushing blow. As you can see, Section 72(t) doesn’t meet the needs of those seeking a one time, variable, or occasional payment from their IRA’s.

    Calculations are reasonably straightforward, at least by IRS standards!
    A.    Life expectancy method: Divide your life expectancy (or your joint life expectancy with your beneficiary) as found in the IRS tables into the account balance as of the previous December 31 each year. This method will lead to a variable payment that may be quite trivial in early years for young people. Assuming positive investment experience, the payments should grow over time.
    B.    Amortization Method: Again using either your own or your joint life expectancy, calculate a payout using both principal and “reasonable” interest rates over your projected life expectancy. This calculation is exactly like a home mortgage, and will result in level payments that will be larger than under payment method A. The “reasonable” interest rate is not exactly defined, but there is a private letter ruling that accepts the “120% Annual Long-Term Applicable Federal Rate” as reasonable. These rates are published monthly. The reasonable rate determines the maximum allowable withdrawals under the plan, but smaller withdrawals are allowed.
    C.    Annuity Factor Method: This method allows for the use of a shorter life expectancy assumption found in the IRS UP-1984 tables. This shorter life expectancy leads to somewhat higher withdrawal amounts than the amortization method above.

    Use caution with high fixed withdrawals under method B or C above. You may experience capital depletion if your investment experience is not at least as much as the withdrawal. Watching your funds depleted at an early age will not make you feel good, and there is no provision for reducing payments due to poor investment performance. Remember those penalties we talked about earlier?

    After you have either attained age 59 ½ or been in the program for 5 years, which ever is later, you are free to vary the withdrawals any way you wish until you reach the mandatory withdrawal point at age 70 ½.

    One final point that adds some flexibility for your planning. You do not have to consider all of your IRA’s when doing the calculations. You could split up your IRA into more than one and do the Section 72(t) calculation and withdrawals from any one you like. That opens up the possibility of either starting a second 72(t) payment series later if you need more than you first thought, or drawing on the remaining IRA’s after age 59 ½ but before you reach the end of the five year period if you started after age 54 ½.