Thursday, November 3, 2016

Will election results matter to markets? Not really

"Time and time again, political parties have tried to recruit the stock market to their side. Most of the time it backfires." -- Peter Eavis, writing for the New York Times, 2016.

BY JULIA ANDERSON
As a retiree living mostly on investment income, I am at the mercy of capital markets and corporations that make a profit and pay me a quarterly dividend.

So how nervous should I be about what political party wins the national election and about who will be sitting in the White House in January? According to the experts at Fidelity.com, I can relax.

“Over the long-term there has been no significant difference on average, between which party controls the White House,” they say.

Neither should I worry about a change in my federal tax obligation, say reporters at the Washington Post.
That said, many of my friends believe that if one or the other party wins the Presidency, we are doomed. The reality is that it will take a lot more than that to upend the economy.

Here’s the key statistic:
Since 1960, the overall average annual return from the American stock market is 12 percent. When Democrats were in office, the annual return was 12.2 percent. During Republican administrations the annual return was 11.8 percent
.

Yes, the Democrats want to tighten regulations on big banks and the health care industry including drug pricing. While tighter regulations can be a factor, bigger trends related to job creation and interest rates on loans may be more important.
“Ultimately, the performance of the economy probably will continue to have the greatest influence on the financial sector,” said Chris Lee, manager of Fidelity Select Financial Services.

 Lee agrees that a “growing global trend toward populism” suggests that regulatory pressure on banks will continue. There is some bi-partisan thought that the Glass-Steagall Act should be reinstated. The Depression-era law that separated commercial banking from securities activities was repealed in 1999.

My view is that banks are part of the bedrock of our economy. With tightened lending regulations, they should continue in their role as lenders. The real disruption in banking is the ongoing Information Age transformation related to online transactions and instant market manipulation. It is a miracle to me that I can deposit checks and pay bills using my smart phone. How many brick and mortar branch offices will banks need going forward? Or for that matter, how many employees will they need? I still like that 3 percent bank dividend.

As for health care, innovation is a huge factor in ongoing profitability for health care corporations and for drug companies. But you’ve got to be in it for the long-term.

Despite strong revenue growth, I have watched my Bristol-Meyer stock decline in value by 23 percent over the past year. That is because analysts are concerned about one of the company’s cancer drugs that failed to meet “its primary endpoint.” The people at S&P Capital IQ still rate the company as a buy. I am going to hold on for the 3 percent annual dividend and because an aging global population means more pills for more people.

As for other sectors, Fidelity analysts expect the energy industry profitability to strengthen in the coming year thanks to growing demand and cost reduction. Just stay away from extremely competitive alternative energy businesses.

Industrials and materials also should continue to strengthen. Typically in the late stages of a bull market (which we have enjoyed for seven years) consumer spending slows (which it is). Industrials on the other hand have a strong outlook because commodity prices should increase. 

Meanwhile, infrastructure spending (as promised by both political parties) is poised to increase as state budgets loosen up. Spending on roads and bridges should increase which is good news for companies like Caterpillar. Despite deadlock in Congress, we have a five-year highway bill and a two-year defense bill, which should give some stability to planning.

Meanwhile, the Washington Post compared tax policies of the two political parties. For the average retired couple with median income of $59,000, there would be no changes in taxation under the Clinton administration and an estimated $600 reduction in federal taxes with a Trump tax plan.

It would be nice to see the opposing political parties actually work together to get a few things done. More stalemate would undermine all the big picture problems that need attention.

I just need to keep reminding myself that over the long term, political parties are NOT an important factor in market ups and downs.

"How Politics Influences the Stock Market: Not Very Much, click here.
 

Thursday, October 27, 2016

Sixtyandsingle expands to TVCTV community television

"To change the way American women think, plan and save for retirement."  - Julia Anderson, founder and contributor at www.sixtyandsingle.com


BY JULIA ANDERSON

Life is good here at sixtyandsingle.com.

My mission to inform women about money, investing and retirement planning continues to expand. Here’s the news: This month, I was invited to tape 10 spots for broadcast on the community cable television channel TVCTV in Beaverton, Ore.

My topics covered a range of material drawn from my posts at sixtyandsingle.com:

The miracle of compound interest for savers. click here.

Romance doesn’t end after age 60, but a pre-nup helps. click here.

My five steps to retirement planning. click here.

Dogs are great pets but can you afford one? click here.

How inflation takes a bite out of your retirement income. click here.

A family meeting about estate planning can lower the stress level for everybody. click here.

Preventing elder financial abuse. click here.

What are RMDs and how to plan for them. click here.

How to hire a financial adviser. Questions to ask. click here.

Do women invest differently than men? Yes, and that is good and bad. click here.

Column continues

Meanwhile, my Smart Money column continues to appear in the Portland Tribune every month. This month’s topic: Oregon’s plan next year to implement a retirement savings program for people working for businesses that don’t offer one. Click here.

And next month, I hope to be back with the folks at TVCTV creative serves to tape a Q&A with Alan Edwards, senior public affairs specialist with the Portland office of the Social Security Administration. When and how to start taking Social Security benefits is a topic of our time.

My mission
Some years ago I wrote a mission statement for www.sixtyandsingle.com. Here it is: "To change the way American women think, plan and save for retirement." I am happy to report that I am staying true to that mission.

Friday, October 21, 2016

Your 60s. It is about change, making the best of it

"Just because you're grown up and then some doesn't mean settling into the doldrums of predictability. Surprise people Surprise Yourself." - Victoria Moran, author "Younger by the Day: 365 Ways to Rejuvenate Your Body and Revitalize Your Spirit."
 
BY JULIA ANDERSON
“WOW that was exciting!”
In the decade of my 60s that is just ending, I experienced the deepest losses and the most triumphal gains of my life.
Readers here at sixtyandsingle have followed along as just about everything that could happen, happened:

A late in life divorce that brought me to my knees.
The end of my long-time job at the newspaper.
The death of my best friend.
A new beginning as a freelancer from home. Launching this blog.
Reinvesting my 401(k) nest egg and signing up for Social Security, then Medicare.
Remarrying!!! Building new relationships and embracing new family. (I had no idea that riding on the back of a motorcycle could be fun.)
Being caught up in family financial turmoil surrounding my mother’s final years and her death at age 98.
Saying goodbye to the family farm.

And at the end of my 60s, accepting a diagnosis of rheumatoid arthritis that has sharpened my focus on health issues and on end of life planning. (This year I updated my will and wrote instructions for dispersing my tangible assets.)

There were practical aspects to my 60s focused on retirement planning, money management and family finances. The emotional side of it meant adjusting to loss -- of my marriage, my full-time job and certain friends. It meant embracing a new 60-and-single world, walking through doors and embracing new opportunities. As the decade ends, I say, wow, you name it, I have lived through it. (And written about it).

Friends have experienced their own trauma. Spouses have died. Others have struggled to care for husbands with Parkinson’s, mental illness and heart disease.

Two friends endured foot surgery. Another spent more than a month lying face-down on a bed because of an eye problem.
Our 60s… it is a big decade!

My dog died.

By the end of it, I am coming to terms with the aging process. Nevertheless, each morning, as I pluck a mini-forest of hairs out of my chin, I feel like I have a lot left to do. Leaving a legacy. Writing a book. Dispersing certain collectibles. Downsizing (but not too much). Traveling. And giving love to those closest…family and friends.

While working at the daily newspaper was an engrossing and rewarding way to make a living, I don’t miss the job, the grind of it.

True heaven is staying in bed with a second cup of coffee, reading the online Wall Street Journal on a Monday morning with no deadlines.

Everything changes in your 60s. Some of my friends have slipped into new orbits centered on children and grandchildren. I miss them but not as much now as before.

There are new interesting people in my life … step-children, grandchildren and new friends whom we have met on the same journey.

Women I know, see 70 as the new 50. No one seems ready to give up being creative -- painting, gardening, cooking, raising money and giving.

Both single and re-married, I appreciate my 60s for what I know now about myself.
This decade asks us to dig deep at a time when we thought things were supposed to get easier. Ha!

As a writer, I feel lucky that my 60s gave me a chance to make sense of life before my higher cognitive powers slip away.
It bothers me that Annie Dillard has quit writing. That Nora Ephron is dead. (I loved “Heartburn.”)

Thank you, Anne Lamont for continuing to enthrall me with your take of the world, on life and love. You have never given up.

I have a friend in her mid-80s who not long ago wrote a great story based on her girlhood during World War II. She gives lectures about it.

My freelance work allows me still to report and write. I continue to passionately share information with women about money, retirement and making the best of it in our 60s.

I worry about the women who have worked most of their lives but have not saved enough to live comfortably in retirement. I lament that women are not more interested in their own financial literacy. None of this long-range planning stuff is complicated.

My most popular topics: traveling solo, remarrying after 60, five steps to retirement planning, financial planning, adjusting to life as a single woman over 60, pre-nups, wills, estate planning, bank trusts.

Some of these posts will soon air on TVCTV, the public television channel in Beaverton, Ore.
And I still report for KXL 101.1 FM.  I am the Smart Money columnist for the Portland Tribune. All fun.

For me, a new relationship has meant the world. Maybe that is because I was so unceremoniously dumped at age 60. Breaking new trail (as a friend recommended, early on) has provided wonderful experiences and memories to dilute those of the past. Unfortunately how relationships end is how they are remembered.

Best advice from my grief counselor: “Cry with your eyes open.”

As much suffering as I did over the end of my long-time marriage, I rejoice in the companionship and comfort gained from this new man in my life.

Loving someone it turns out does not have to be a lot of work. That loving someone can be comfortable, fulfilling. No topic is off limits. Thank you, God (and only you know what I’m talking about).

Love in all its forms is more important than ever to me. You just keep giving it away.
As Jane Austen wrote, “Let other pens dwell on guilt and misery.”

At the end of my 60s, I wake up every morning feeling blessed.
That second cup of coffee helps.
 

Thursday, September 8, 2016

Dogs: They love us, we love them. But what about those vet bills?

"Dogs never bite me. Just humans."  - Marilyn Monroe. American actress and model. (1926-1962)


By JULIA ANDERSON
While having my new yellow Labrador checked out at the vet’s the other day, a distraught family came rushing through the front door carrying a dog in their arms that looked injured. The girls were sobbing, their mothers, clearly upset.
A technician quickly took them into a private exam room where the sounds of the crying girls were muffled by a closed door.

I don’t know what had happened to the dog, which looked to be a floppy-eared brown and white Spaniel, but it was likely hit by a car. The situation was serious.

The other day, a friend of mine who owns two small house dogs, shared that she had spent $3,000 twice on her cuddly pooch to have its hearing restored. These dogs are beloved family members who live indoors, share a night time bed with their owners and eat tidbits from the table

There’s no doubt that my friend can afford the vet bills and the loving care that she and her husband lavish on these dogs, but the young family with the injured dog may not have the budget for the hefty vet bill headed their way.
Dogs, while part of the American dream, can be expensive.

“You only want to do it, if you can afford it,” says Harrison Forbes, celebrity pet expert and author of “Dog Talk: Lessons Learned from a Life with Dog.”

So before your kids nag you into getting a dog, consider the set-up costs and the ongoing maintenance expense of owning a dog. If you are retired and on a fixed budget the financial challenge may even be greater.

New dog set-ups costs: Our new yellow lab came to our door, free as a stray with no collar and no “chip.” I checked with neighbors, put up a found-dog sign and looked at a countywide online “lost dogs” list. Nothing.

I had kept the dog-related stuff from when our wonderful black lab died a few years ago, so set-up costs were below average. We already had the leashes, collar, dog house, crate, dog food bin and even some toys left over from “Coot.” But in the first week of ownership, I spent $165 for a visit to the vet and for shots, $40 on new toys, $50 on dog food and $30 for one night of boarding.  First year dog ownership expenses can range up to $2,000 or more, according to a report at Kiplinger.com  (click here)

On-going dog-related costs: Annual dog food costs can average between $55 for a small dog (which seems low) to $300 for a large dog. Toys could run $75 a year. Vet care, around $260. By the way, bankrate.com reports that vet bills in the Portland area are 13 percent higher than the national average.

Add on grooming fees, travel/boarding expenses and pet insurance. The annual cost of owning a dog may climb to several thousand dollars a year.

In an article, "Don't let your dog send you to the poor house, Catey Hill writing at MarketWatch, said six in 10 American households have at least one pet. The average dog owner spends $227 per dog a year at the vet.

But the biggest cost may be unexpected emergency care or a surgery, especially as dogs age. Those fees may range between $3,000 and $5,000.

I am sure the family with the injured Spaniel could face a $600 to $1,000 bill depending on what will be done to save their beloved pet and family member. (Maybe they should have taken the dog home, get him resting in a comfortable bed to see how he does before heading straight for the vet's office.)

Other ways to cut costs: Make do it yourself dog treats and toys, use online coupons to get discounts on dog food purchases (wag.com, PetSmart and Petco), groom at home, exercise your dog to keep him healthy, shop around for a vet and stay current on shots and pills. And adopt a dog vs. buying a pure-bred animal.

Why own a dog, if it costs so much? Because we love them and even more important, they love us.
In older people, dog ownership can lower blood pressure and improve mental outlook.

Having a dog, teaches kids how to care for someone besides themselves. Playing with a dog reduces asthma in children and makes it less likely they will be over-weight, say experts.

These are all great reasons to own a dog. Just make sure you can afford one.

For MORE:
How to negotiate your vet bill. click here.
17 ways to save money on pet expenses, click here.
Creating a pet budget. click here.
U.S. News, saving money on your pet. click here
Ten Financial Lessons I learned from my dog. click here.
MoneyTalksNews click here.


Thursday, August 11, 2016

Senior housing: How much will it cost?

"Aging is not lost youth but a new stage of opportunity and strength." --- Betty Friedan, American writer, feminist, activist. Author of "The Feminine Mystique." (1921-2006)


Senior housing definitions:
Independent Living: Communities for independent seniors that offer the conveniences of on-site recreation plus educational and social opportunities.

Assisted Living: Residential housing, assistance in daily activities, and some healthcare.

Continuing Care: Provide a continuum of care in one location from private units to assisted living and skilled nursing care
Skilled nursing care: Care in a hospital-like setting. Nursing, physical therapy, occupational therapy, and speech therapy are considered skilled care by Medicare.

Alzheimer’s Care or Memory Care: Fosters residents' individual skills and interests in an environment that helps to diminish confusion and agitation in a secure environment.

Adult day Care: Day-time care including meals in an organized setting with activities and services meant to promote well-being.

Adult family homes: Licensed residential homes with up to six residents. Services include room, board, laundry and necessary supervision along with help with daily living. 


BY JULIA ANDERSON
As we age, most of us expect to remain in our homes and hope to be there until the end. The reality is that according to national surveys, 70 percent of us over age 65 will likely need some kind of long-term care and will die in a hospital.

At the start, those care services may be provided at home with drop-in help for bathing and meal preparation. As aging progresses, most of us will likely move to some sort of senior housing – independent living, assisted living, memory care or an adult family home.

Unless you are very low-income, you or your family will be paying for all or some of those services. Those costs can range up to more than $90,000 a year for skilled nursing services in a hospital-like setting following a stroke or other debilitating health challenge.

Finding senior services for a loved one and investigating housing options and costs can feel overwhelming for families.
The good news is that help is available, says Staci Levison,  a supervisor with a community services agency in my area of SW Washington state. Advisors there can help families get started with research and connect them with the best combination of local senior services. The service is free.

But there are challenges, in finding the right care at the right cost. In the Portland-Vancouver, Wash. area market (as in most other locations around the country) the demand for senior housing in certain categories is out-stripping supply. That means monthly rents and rates are increasing.

Low-income senior housing is in particular short supply.  “The reality is that the more income you have the better your chances are of finding senior housing,” Levison said. But with the help of community services specialists, families can get started on tailoring local support resources with the individual senior’s needs. These specialists know what questions families need to ask and what local services are available.

As with most housing searches, availability and cost are big factors for families.

What are those basic costs?

According to Washington Community Living Connections, the cost of one year of in-home senior assistance services can be as low as $20,000 a yea in the Portland, Ore. area. That is for three hours a day for bathing assistance, meal preparation and light housework.

On the other end of the scale, a year of skilled nursing care in a semi-private private room in Washington state will likely cost $93,000 a year, according Community Connections.

Such costs will drain away the assets of a senior, leaving them dependent on Medicaid and Social Security income.

Availability

Online www.seniorhousing.net, reports that there are 52 certified assisted living facilities in the Vancouver area with basic monthly rates starting at $1,993 a month. Monthly rates for the 19 Alzheimer’s care facilities in the Vancouver area range start at $1995 to $2995.

In all there are at least eight categories of adult care. Among those are adult family homes that are licensed residential units with up to six beds. Services in adult family homes include room, board, laundry and necessary supervision along with help with daily living. In the five-county Southwest Washington area there are 300 adult family homes, Levison said.

Monthly rates for these facilities can range from a low of about $2,500 a month for a private room with basic services to as much as $5,500 to $6,000 a month for hospice-level care, said Victoria Kovtun, owner of Harmony Senior  Homes in Vancouver, Wash.

“There is a lot of need in the community for low-income family home care, but unfortunately (for cost reasons) it is difficult for operators to accommodate more than two per facility,” she said. “Many homes won’t take low-income clients.”

Senior Housing outlook

Demand for senior housing is growing as baby boomers age into their 70s.
“Back in the 1970s, many seniors ended up in nursing homes in a hospital bed,” said Levison. “That’s changed. Now an array of services can be combined to allow people to age in place. In addition, there are more alternative housing options and more support for family care givers.”

As with all life’s challenges, she encourages families to plan ahead. Here are here recommended first steps:

-Take stock of the personal situation of your senior.
-Assess the needed level of care.
-Look at the current financial picture and what might change.
-Work with a senior living advisor in your area to find solutions to the challenges your family might face.


Those advisors also are available through private services such as A Place for Mom, Assisted Living Locators, Adult Living Solutions.

Along with costs and services, family may also be considering location of the care facility, said Monika Gartner, Portland-area owner of Care Service Options. “Location to and from work is very important for a family member who is employed and wants to check in with a loved one to or from work." she said.

In their book, "What You Really Need to Know for the Second Half of Your Life," the staff at Vancouver, (Wash.) law firm, Phelan Webber & Associates, points out that a socially active life style is beneficial at all stages of aging.

Depending on the personality and care needs of a loved one, families may be able to arrange in-home companionship through Meals on Wheels, drop-in care services and families visits.

When the time comes, even though an elderly person may resist a move to a care facility, a good transition to a group home or assisted living facility may lower stress levels for everyone and provided that needed socialization for the senior, the Phelan experts say.

At the point where such a move is necessary, an assessment is required from a nurse to determine the patient's level of care needs. The level of care will then dictate the needed level of services in a care facility. That translates into how much it will cost.

For MORE:
Eldercare locator: click here.
HUD information for senior citizens, click here.
Long-term care choices from Medicare, click here.

Friday, July 22, 2016

Five steps to retirement before you stop working

"Planning is bringing the future into the present so that you can do something about it now." --- Alan Lakein, author of "How to Get Control of Your Time and Your Life." In his 70s, he lives in Santa Cruz, Ca.

Editor's note: This five-step retirement planning post has made earlier appearances at www.sixtyandsingle.com. But its value is so compelling, I am providing this updated version. For both singles and marrieds, we provide a road map for retirement planning. If married, do a separate version as if one of you has died. Remember that half  of American women over age 65 are single and financially on their own. Share these steps with your children, especially your daughters.

BY JULIA ANDERSON
People tend to put off retirement planning until their 50s. Most of us are too busy with family and work until then to think about seems like far away retirement in our 60s. Even then, some may ignore the whole issue until it is too late. Others may experience a growing sense of panic about the future with more questions than answers.

How much income will I have once I stop working?
Where will that money come from?
How long can I expect to work after age 60?
When and how should I begin taking Social Security benefits?

All this may seem like a black hole.

Here are five steps that will tell you where you stand and what you need to do between now and that day when you walk away from that full-time job.

STEP 1: To know where you want to go, you need to know where you are. So your first step is to put together a current household budget.

Figure out how much it is costing you and your family to live month-to-month. List your monthly rent or mortgage payment, estimated monthly food costs. Add up insurance fees and utilities costs.  Include what you are spending on transportation, clothing, medical services, entertainment and travel and credit card payments over a year, then average by month.  Don’t forget taxes. This current baseline cost-of-living budget will determine where you want to be down the road in retirement.

STEP 2:  Visit the Social Security Administration web site at www.ssa.gov and set up an account using your Social Security number. Calculate -- based on your own work history -- what estimated benefits you will receive at age 62, at 66 and 70. You will learn that benefits increase by 8 percent for every year you delay taking them up to age 70.
But don’t stop there because there are other ways to claim benefits based on your marital history, your age and whether you are widowed or divorced. For instance, you may be able to receive benefits on a spouse’s Social Security account while letting your own account remain untouched. All this can quickly get complicated but definitely worth figuring out.
Keep in mind that if you start benefits at 62 rather than at full retirement age of 66 or 67, your benefit amount will be permanently reduced up to 30 percent.
For personal assistance, schedule a face-to-face meeting with Social Security rep at a local office to better understand your options for how and when to claim.  Social Security is an important revenue stream for retirees and should carefully be planned out.

STEP 3: Consider what other sources of income you might have in retirement. Will you be tapping into a retirement savings account such as tax-deferred work-related 401(k) plan or a self-directed Individual Retirement Account? How much do you plan to withdraw?
Will you receive revenue from a rental property? Do you expect to inherit money or property? Do you hope to ease into retirement by working part-time after you step away from the full-time job?

STEP 4: By now, you should be feeling better about where that retirement money will come from.  Based on your research, so far, determine what your annual income likely will be in retirement, if you stop working cold turkey at say, age 62 or 66.

STEP 5: Put together an estimated retirement household expense budget similar to the current budget you have already formulated. Will your cost of living decrease in retirement from what it is now? Or will it be pretty much the same as your current budget? Some costs for such things as clothes and transportation likely will drop while others related to travel and medical expenses may increase.

Now for the BIG QUESTION: How does your estimated retirement cost-of-living budget match up with your estimated retirement income? If retirement expenses outstrip retirement income there is a lot you can do in your 50s to make sure things match up in your 60s. For instance:

Realistically, could you keep working into your late 60s?
Can you delay claiming Social Security benefits? Could you claim benefits on an ex-spouse before claiming them on your own account?

Could you pay off your mortgage before you retire? Could you downsize to a smaller, less expensive place, a different town?

These strategies can help stretch your retirement savings.

You now have a good picture of where you stand and what your income will be in retirement, depending on the age that you retire. You now have the basic information to form a plan and make changes, if needed.

If estimated retirement income does NOT cover your estimated retirement expenses, you have two choices: Either aggressively save more money for retirement or reduce your living expenses before you retire to match your expected income.

You may be surprised that retirement looks better than you thought. Either way, you have eliminated the black hole.

For MORE:  Social Security tips for singles, click here.

Sunday, June 12, 2016

RMDs: What they are, how they work and what to do

"In this world nothing can be said to be certain, except death and taxes." - Benjamin Franklin (1706-1790), among the nation's Founding Fathers, postmaster, scientist, inventor and diplomat.

Required minimum distributions:
- What: Withdrawals mandated by federal tax law from tax-deferred retirement accounts such as traditional IRAs and 401(k)s.
- Why: These are tax-deferred savings, not tax-free.
- When: At age 70 1/2.
- Impact: RMDs are taxed as ordinary income, so plan ahead.
- Withdrawal schedule: Calculated over a 27-year life expectancy beginning at 70 ½.
- Failure to make the withdrawal: The amount not withdrawn is taxed at 50 percent.


Managing RMD withdrawals:
- Use online calculators to figure when and how you take your annual required distribution. Or talk with your CPA and/or financial adviser to make sure you are on the right track.

- Review the tax impact of annual RMD income.
- Look into inheritance and beneficiary rules for IRAs and 401(k)s.
- Give IRA/401(k) money directly to charity to satisfy the annual RMD requirement.
- Make your first withdrawal before April 1 of the year you are 701/2.
- Seek professional estate planning advice to manage the RMD transition.
- Remember, the money will last longer than you might think.


BY JULIA ANDERSON
People celebrating their 70s birthdays this year -- as the vanguard of the baby boomer generation is doing – must start taking withdrawals from their tax-deferred retirement savings accounts in the next nine to 21 months, depending on when they become 70 1/2.

These annual withdrawals -- known as required minimum distributions (RMDs) -- are mandated by federal tax law. Their purpose is to let the government start collecting taxes on the savings/investments earned inside these tax-deferred accounts such as traditional IRAs and 401(k)s.

RMDs are taxed as ordinary income based on your individual tax bracket. The good news is that withdrawal rates as mandated by the IRS are relatively painless.

Here’s how it works:
You must take your first RMD for the year in which you turn age 70 ½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70 ½. All subsequent years, you can make your withdrawal by Dec. 31 of that year.

You are required to take an annual minimum distribution as determined by an IRS tax formula. The formula is based on the value of your account at year’s end.

To figure the withdrawal amount, use an IRS worksheet at www.irs.gov or an online calculator at web sites such as bankrate.com, fidelity.com or aarp.com.  The AARP calculator offers a nice graphic showing that your peak annual withdrawals will not occur until you are in your 90s. That is because withdrawals are projected over a 27-year-life expectancy to age 100. That leaves money in the account pretty much up until the end of your life.

Here are examples:
You have $200,000 in a traditional IRA and expect an average 5 percent return on the remaining tax-deferred investment going forward. At 701/2 your first annual withdrawal will be $9,549. By age 80 your annual withdrawal amount has increased to $11,848. At 90 it is up to $16,384 a year. Here’s the good news --- at age 95, even after all those annual withdrawals, your account still will have $136,000 in it, if it indeed it earns 5 percent a year, as expected.

Or let’s say you have $1 million socked away in your traditional IRA. At 70 1/2 you are required to withdraw a minimum of $38,250. At age 80, your annual MRD is up to$57,183 and by 90 you are required to withdraw $79,074.
But again there is money left in the account that has been earning an average of 5 percent a year and is still tax-deferred. At age 90, your account balance is $867,446, according to the fidelity.com calculator.

Yes, you may be paying more in income tax as you make these increasing withdrawals but there is peace of mind in knowing how this works and that the government gets those taxes at a slow rate. However, if you forget to make the MRD withdrawals, there is a harsh 50 percent tax penalty.

Next financial planning steps?
Once you figure what the projected MRD formula will likely be, start thinking about tax and inheritance strategies.  According experts, IRA accounts inherited by husbands and wives are treated differently in the tax code than IRAs inherited by children or other heirs. Surviving spouses can roll IRAs into their own accounts. If your IRA money goes to your children or other heirs and they want to continue the tax-deferred benefit, each must “roll his portion of the IRA into a separate account known as an inherited IRA, which comes with its own set of rules,” said advisers at Kiplinger.com. Visit your favorite CPA for estate planning and tax advice on this one.

Ways to manage the RMD transition:
-RMD withdrawals must be in cash. In advance of taking the annual distribution move a little more of your investment portfolio to cash. That way you avoid selling stocks or mutual funds to meet the RMD requirement at an inconvenient time. Click here for IRS link.

-Use a charitable distribution from your IRA to satisfy all or part of your annual MDR requirement. If you withdraw the money yourself, then donate, you will pay taxes on the distribution. If you don’t need the RMD cash, this is a great way to give “more” to your favorite charity. There may be reasons why this is not the best idea because of tax issues. So click here for a thorough look at this strategy at www.Forbes.com.

-Because they are taxed as ordinary income, RMD withdrawals can push you into a higher tax bracket. When added to your other income including Social Security, the tax bill can go up. If your total income exceeds certain thresholds, you could see as much as 85 percent of your Social Security benefit subjected to tax, experts say.

Bottom line: There is a lot to think about when setting up your RMDs. Naming beneficiaries, understanding inheritance rules and arranging charitable donations are worth looking into. My advice: Start studying up on RMDs now and talk to a tax professional who understands estate planning law. Good luck.

For more:
www.fidleity.com/retirement, click here
www.irs.com, click here.
ABCs of RMDS: Required Minimum Distribution  Rules for Retirement. click here.
Estimate your RMD distributions in retirement, click here.
RMD table at bankrate.com, click here.
AARP, click here.