| Sargent & Lundy Savings Investment Plan |
| Q&A: IRA WITHDRAWALS AT RETIREMENT |
| The following excerpts are from an article in the November
1998 "Retire With Money" newsletter. The opinions expressed by
the author, Lani Luciano, may or may not reflect those of the SIP Committee.
Q. When I retire in two years I'll be 65, collecting two pensions and should have roughly $350,000 in my IRA. My account is divided equally between stock mutual funds and bond funds. I plan to tap 5% of my money annually, but I'm concerned about outliving my money. Is it better to take out less, just to be on the safe side? A. That's one way to approach the problem. In fact, with your asset allocation, a 3% withdrawal rate is virtually bulletproof, according to El Cajon, Calif. financial planner William Bengen. But since this is far less than you had planned on - $10,500 a year in today's dollars compared with $17,500 - this solution might not be ideal. So Bengen suggests another tactic,namely raising your stock allocation to at least 60% and, if you can sleep at night, to as much as 75%. Then according to his model, you can withdraw 4% a year, or $14,000, for at least 33 years. Q. I'm nearly 70-1/2. Soon I'll have to begin making mandatory withdrawals from my IRA, though my wife and I don't need the money to live on. She's my beneficiary and we expect her to inherit the account. But we'd like to preserve as much tax-deferred cash as possible for our kids. With that in mind, what's the best withdrawal calculation method to use? A. Here are the facts: If you use the fixed method, you and your wife use the IRS' actuarial tables once to estimate your joint life expectancy, and stick to that figure. In that case, your withdrawals will be larger than if you use the recalculation method, which requires you to reset your joint life expectancy each year as you age. But while the fixed method will deplete your account faster, leaving less tax-deferred cash growing for your kids, picking the recalc method isn't a fail-safe plan. Here's why: If, as you assume, you die first, your wife will be able to convert your IRA into her own new account, an option available only to spouses. She can name your kids as her beneficiaries, choose her own calculation method and base her withdrawals on the new joint life expectancy. Under that scenario, it really won't matter much which withdrawal method you chose because she can make new choices. You may outlive your wife, however. In that case, it will matter which method you choose because you will have to stick with it. With recalculation, the withdrawal schedule ends when you die. Soon after that, your kids will have to take all the money out of your IRA and pay taxes on their inheritance. With the fixed method, though, any time remaining on your withdrawal schedule could be continued by your kids, prolonging their tax deferral. Finally, by combining the two options, known as the hybrid method, you can prolong tax deferral for your kids, no matter who dies first. It is likely to deplete your IRA faster than either of the other methods, however. So have a tax expert run the numbers before you decide. |
This page updated on 11/9/98