Dear Friends and Family,

As one prepares for retirement, the following thoughts should be considered…

1. Wait until age 70 to claim Social Security benefits. These benefits are a lifetime annuity, adjusted for cost of living increases and have tax benefits.
2. Wait until age 70 when Required Minimum Distributions [RMDs] are required to start. Limit withdrawals from retirement accounts to RMDs. These distributions rise and fall with security markets thereby protecting against excessive withdrawals. There are three general approaches to RMD withdrawals:
   a. Monthly provides a consistent payment and averages out the fluctuations in the account.
   b. The end of the year allows the funds to grow tax deferred.
   c. Single payments to fund a charitable gift or major purchase.
3. There are also several strategies for individuals who do not currently need the RMDs and wish to reduce the taxes they generate.
   a. Liquidating the IRA.
   b. Converting to a Roth IRA.
   c. Converting IRA into Life Insurance.
   d. Making Qualified Charitable Distributions from the IRA
   e. Purchasing Qualified Longevity Annuity Contracts with IRA funds
4. Portfolios should be primarily invested in stocks or stock funds. There will be volatility but that is the cost of much higher returns. Also remember that Social Security provides a measure of stability to offset this volatility.
5. The 100-year, after inflation, rate of returns on bond funds is 1%. The return on stock funds is 7%.
6. Reserves should be available from five possible sources; bank accounts, money market accounts, home equity loans, non-retirement securities accounts and reverse mortgages. If necessary, these sources should be used as interim financing to wait till age 70 for Social Security or RMD payments. These sources may also provide interim financing when markets take their occasional decline and RMDs are reduced.
7. Stay invested. There have been 90 declines of 5% or more since mid-1945. On average the declines took 3.7 months and full recovery took 5.6 months. Very short when compared to retirement investment time frames. All may serve your purposes at different times.

Sources: Morningstar, Stanford Center on Longevity, Barron’s, AAII and The Economist

Katz Family Financial