Finances During Retirement

Happy Valentines Day to you and your family. This will be longer than normal and has 3 sections: Vanguard Weekly Recap, Finances During Retirement, and a section on what Love means to kids. Make sure you read the last section, it will warm your heart.

Vanguard Weekly Recap

The light slate of economic news this week dealt with rising demand. Higher oil prices and a healthier appetite for spending led the U.S. trade deficit to increase in December, as imports grew more than foreign demand for U.S. exports. Increased spending also translated to higher consumer borrowing. In international news, political unrest in Egypt continued for a third week, disrupting the country's economy and keeping its stock market closed. For the week ended February 11, the S&P 500 Index rose 1.4% to 1,329 (for a year-to-date total return—including price change plus dividends—of about 5.9%). The yield of the 10-year U.S. Treasury note fell 4 basis points to 3.64% (for a year-to-date increase of 34 basis points).

Finances During Retiremenet
Information by Marcie Geffner Tuesday, February 8, 2011

Tapping retirement accounts

For many, the biggest decisions involve when to tap investment accounts and when to collect Social Security benefits. Seniors are required to take minimum distributions from individual retirement accounts, or IRAs, and 401(k) plans, beginning the April 1 after the year in which they become 70½ years old. The first minimum distribution is 3.65 percent of the account balance; after that, the percentage increases each year.

Roth IRAs are an exception. These accounts have no required minimum distributions. Seniors usually are well-advised to tap nonqualified accounts first, IRA and 401(k) accounts next, and Roth IRAs last, Tepper says. This strategy delays the tax implications and allows the tax-advantaged investments to continue to grow for a longer period of time.

Taking Social Security

Seniors can claim Social Security benefits starting at age 62, but those benefits are reduced until the senior reaches the so-called full retirement age, based on his or her year of birth. Seniors who are unemployed or retired, either by choice or default, may want to collect Social Security as soon as they're eligible. Tepper says that's a good strategy if the senior's investments can earn an after-tax return of at least 3 percent per year. Again, the idea is to keep more money invested for future growth.

Seniors who are working may want to delay Social Security because their benefit may be reduced, depending on their current age and income, until they reach full retirement age. The break-even point at which the total Social Security benefit is about the same, whether it's taken in a smaller amount at age 62 or a larger amount at age 65, is about 10 to 12 years, Panaccione says.

3 mistakes to avoid

1) Taking out too much money too early. "Overspending early in retirement is definitely a huge mistake," Tepper says.One rule of thumb is to not spend more than 4 percent of an investment portfolio in the first year. Spending a smaller proportion can allow a portfolio to continue to grow and keep up with the rate of inflation.

2) Investing too aggressively or too conservatively. Another rule of thumb is to keep three to five years' of expenses — or more conservatively three to seven years' — in safe investments, and be slightly more aggressive with money that won't be needed for a longer time.

3) Overlooking the tax implications of IRA withdrawals. Tapping — or tapping out — an IRA too soon can radically alter a senior's tax situation. A typical miscalculation is using the money to pay off a mortgage. "Say it's a $100,000 mortgage and a $100,000 IRA," Panaccione says. "You yank out the $100,000 to pay off the mortgage, and then you've taken a $100,000 income-producing asset, which gives you tax deferral, out of circulation, and you've gotten rid of your tax break, so maybe now, you can't itemize."

Definition of Love - Out of the Mouths of Babes

A group of 4 to 8 year-old children was asked - “What does love mean?” The answers were broader and deeper than anyone could have imagined. See what you think -

“Love is what makes you smile when you're tired.” Terri - age 4.

“Love is when my mommy makes coffee for my daddy and she takes a sip before giving it to him, to make sure the taste is OK.” Danny - age 7.

“Love is when you kiss all the time. Then when you get tired of kissing, you still want to be together and you talk more. My Mommy and Daddy are like that. They look gross when they kiss.” Emily - age 8.

“Love is what's in the room with you at Christmas if you stop opening presents and listen.” Bobby - age 7.

“If you want to learn to love better, you should start with somebody who you hate.” Nikka - age 6.

“Love is when you tell a guy you like his shirt, and then he wears it everyday.” Noelle - age 7.

”Love is like a little old woman and a little old man who are still friends even after they know each other real well.” Tommy - age 6.

“During my piano recital, I was on a stage and I was scared. I looked at all the people watching me and saw my daddy waving and smiling. He was the only one doing that. I wasn't scared anymore.” Cindy - age 8.

“My mommy loves me more than anybody. You don't see anyone else kissing me to sleep at night.” Clare - age 6.

“Love is when Mommy gives Daddy the best piece of chicken.” Elaine-age 5.

“Love is when Mommy sees Daddy smelly and sweaty and still says he is handsomer than Robert Redford.” Chris - age 7.

“Love is when your puppy licks your face even after you left him alone all day.” Mary Ann - age 4.

“I know my older sister loves me because she gives me all her old clothes and has to go out and buy new ones.” Lauren - age 4.

“When you love somebody, your eyelashes go up and down and little stars come out of you.” Karen - age 7.

“You really shouldn't say I love you unless you mean it. But if you mean it, you should say it a lot cause people forget.” Jessica - age 8.