Paying Off Debts - FAQ

Dear Liz: In a recent column, you noted that someone who chooses to obtain Social Security at age 62 on her own account is unable to switch to her spouse's account at age 66. Is this true for a spouse who is older than the husband? My husband is one year younger than me. If I chose to start Social Security at age 62 on my own benefits, would I be able to switch to his when he retires at age 66 (and I would be age 67 at the time)?

Answer: You've actually got it a bit backward. Someone who waits until her full retirement age to apply for Social Security has the choice of starting with a spousal benefit (typically half of what the spouse gets) and then switching to her own benefit later, usually at age 70 when it's reached its maximum level.

This is often a recommended strategy with two high earners, since the one receiving spousal benefits can "graduate" to her own, higher benefit later. If the spouse receiving spousal benefits was a lower earner, her benefit might not be as big as her spousal benefit at age 70, so there would be no reason to switch.

If you start benefits before your own full retirement age, however — using either your own work record or that of your spouse — you're locked in. You can't switch to the other benefit later.

For a program meant to benefit ordinary Americans, Social Security can be mind-numbingly complex. Fortunately, you can find good calculators at the AARP and T. Rowe Price websites to help you sort through your options.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: My husband and I have been putting 5% and 6%, respectively, into our 401(k) accounts to get our full company matches. We're also maxing out our Roth IRAs.

The CPA who does our taxes recommended that we put more money into our 401(k)s even if that would mean putting less into our Roth IRAs. We're also expecting our first child, and our CPA said he doesn't like 529 plans.

What's your opinion on us increasing our 401(k)s by the amount we'd intended to put into a 529, while still maxing out our Roths, and then using our Roth contributions (not earnings) to pay for our child's college (assuming he goes on to higher education)?

Our CPA liked that idea, but I can't find anything online that says anyone else is doing things this way. I can't help but wonder if there's a catch.

Answer: Other people are indeed doing this, and there's a big catch: You'd be using money for college that may do you a lot more good in retirement.

Contributions to Roth IRAs are, as you know, not tax deductible, but you can withdraw your contributions at any time without paying taxes or penalties. In retirement, your gains can be withdrawn tax free. Having money in tax-free as well as taxable and tax-deferred accounts gives you greater ability to control your tax bill in retirement.

Also, unlike other retirement accounts, you're not required to start distributions after age 70 1/2. If you don't need the money, you can continue to let it grow tax free and leave the whole thing to your heirs, if you want.

That's a lot of flexibility to give up, and sucking out your contributions early will stunt how much more the accounts can grow.

You'd also miss out on the chance to let future returns help increase your college fund.

Let's say you contribute $11,000 a year to your Roths ($5,500 each, the current limit). If you withdraw all your contributions after 18 years, you'd have $198,000 (any investment gains would stay in the account to avoid early-withdrawal fees).

Impressive, yes, but if you'd invested that money instead in a 529 and got 6% average annual returns, you could have $339,000. At 8%, the total is $411,000. That may be far more than you need — or it may not be, if you have more than one child or want to help with graduate school. With elite colleges costing $60,000 a year now and likely much more in the future, you may want all the growth you can get.

You didn't say why your CPA doesn't like 529s, but they're a pretty good way for most families to save for college. Withdrawals are tax free when used for higher education and there is a huge array of plans to choose from, since every state except Wyoming offers at least one of these programs and most have multiple investment options.

Clearly, this is complicated, and you probably should run it past a certified financial planner or a CPA who has the personal financial specialist designation. Your CPA may be a great guy, but unless he's had training in financial planning, he may not be a great choice for comprehensive financial advice.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I will be 68 this summer and plan on working two more years. My wife retired in 2011 after turning 60. We would like to maximize our Social Security and are planning on having her take spousal benefits when I retire. When she turns 70, she can switch to her own benefit. How much of my benefit will she receive if she starts receiving it when she is 64 and I'm 70?

Answer: If your goal is to maximize your Social Security benefits as a couple, you should rethink having her apply before her full retirement age.

If she applies before she turns 66, she won't have the choice of switching benefits later. The Social Security Administration will compare the benefit she has earned with her spousal benefit (basically half of your benefit, reduced by the fact that she is applying early). If her spousal benefit is larger, she will get her own benefit plus an amount of money to make up the difference between the two. What she won't get is the option to let her benefit continue to grow so that she can switch to that larger check later. The option to switch is available only if she waits until her full retirement age to apply.

There are several good online calculators to help you compare your Social Security options, including ones at AARP and T. Rowe Price.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: My spouse has tenure at a university. Given that one of us will always be employed, should we change the way we look at the amount of money we keep in an emergency fund or our risk tolerance for investments?

Answer: Even tenured professors can get fired or laid off. Tenure was designed to protect academic freedom, but professors can lose their jobs because of serious misconduct, incompetence or economic cutbacks, such as when a department is eliminated or a whole university is closed. About 2% of tenured faculty are dismissed in a typical year, according to the National Education Assn.'s Higher Education Department.

That's more job security than in most occupations, of course. Your spouse also may have access to a defined benefit pension, which would give him or her a guaranteed income stream in retirement. Those factors mean you reasonably can take more risk with your other investments.

As for your emergency fund, you may be fine with savings equal to three months of expenses. But consider that if your spouse were to be dismissed, he or she probably would have a tough time finding an equivalent position. If the institution starts having financial difficulties or if there is any reason to suspect that he or she could be dismissed, a fatter fund could come in handy.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: In a recent column, you answered a question from someone who had started receiving Social Security benefits at 62. You mentioned the many advantages of delaying the start of Social Security checks until full retirement age but then said, "In your case, it's too late for second thoughts anyway."

Why didn't you mention the option of repaying all the Social Security checks you've received and then restarting your benefit at a higher amount, based on your age? I first learned about that option from one of your columns a few years ago, and actually did it. It sure worked out great for me. Viewed as purchasing a fixed annuity in the amount I paid back, I've been getting about a 9.5% annual return. Thanks so much for alerting me to that option!

Answer: The payback option was indeed a good one for people who regretted starting their benefits early and who had the means to pay back everything they'd received from the program. This "do over" allowed them to lock in a higher benefit amount for themselves and for their surviving spouses. In essence, they were able to "invest" the money they paid back and get a higher return than they could get from any other safe investment.

Unfortunately, after the payback option started receiving a lot of publicity, the Social Security Administration decided in 2010 to end it. So it's no longer possible to correct the mistake if you start benefits too early unless you do so within the first year after applying.

This just underscores why it's so important to research and understand your options before you apply for Social Security. Good resources include the AARP website, which has an easy-to-use retirement planner, and the book "Social Security for Dummies" by Jonathan Peterson. Another resource is the "Maximize My Social Security" calculator developed by economist Laurence Kotlikoff at www.maximizemysocialsecurity.com. For $40, the calculator will allow you to play with different scenarios and show you which options will increase your lifetime benefits.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: Your comments about the benefits of delaying Social Security misled readers. While a cost-of-living increase was standard for many years, it no longer is. You might want to check back over the last 10 years to get details. In addition, a reader might interpret your points about the increased benefit at full retirement age versus the benefit amount at 62 as a promise for the future. Factors such as health and family longevity are also involved. Depending solely on one's Social Security check for living expenses will most likely bring derisive laughs for those who unfortunately have to do just that.

Answer: Your comments are a good example of why it's important to get a second opinion on Social Security benefits, because what we think we know about the program may not be true.

One of the best reasons for delaying Social Security is to claim a bigger benefit down the road, a benefit that has nothing to do with cost-of-living increases. "Retirement benefits increase by 6 2/3% each full year an individual waits between age 62 and 65," said Patricia Raymond, regional communications director for the Social Security Administration. "For each additional year an individual delays benefits from age 65 until full retirement age, the benefit increases 5%."

The full retirement age is now 66 and will increase to 67. Even if Social Security is restructured sometime in the future, it's highly unlikely that the system would stop rewarding people for delaying retirement or that cost-of-living increases would be discontinued (although they may be reduced).

By the way, there have been only two years in the last 10 when there was no cost-of-living increase, as you can see at http://www.ssa.gov/cola/automatic-cola.htm. Increases have ranged from 1.7% this year to 5.8% in 2009. The average for the last decade was 2.56%. Whether these increases truly keep up with inflation is questionable, especially with increasing Medicare costs, but to say cost-of-living adjustments are no longer "standard" simply isn't true.

Trying to decide when to take Social Security based on your current health or your family history of longevity is tricky, at best. Taking Social Security early might turn out to be a good decision if you die relatively early, or it could be a big mistake if you live longer than expected or you have a surviving spouse who may depend on your benefit. (Starting your retirement early would reduce not only your check but also the check a survivor would receive.)

The AARP website has a Social Security calculator that can help you understand the ramifications.

Obviously, some people have little choice but to apply for Social Security as soon as they're eligible because they need the money. But delaying Social Security for a bigger benefit can be seen as a kind of longevity insurance for those who can afford to do so. Even people in poor health or who lack a family history of longevity might want to hedge against the possibility of outliving other assets, either for themselves or their spouses.

Ideally, no one would rely solely on Social Security benefits, but unfortunately many do. Social Security constitutes 90% or more of income for nearly half of single retirees and more than 1 in 5 married couples. For most people who receive Social Security, the checks represent half or more of their income. So it makes sense to learn how to maximize your benefits using information from reliable sources. In addition to the Social Security and AARP websites, you can learn more from the excellent primer "Social Security for Dummies" by Jonathan Peterson.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I'm getting about $500,000 from the sale of my business this year and next year will be getting an additional $1 million. What's the best way to invest the money so I can make $150,000 to $200,000 a year? I am 55 years old and will have no other income than what I can earn with this money.

Answer: You probably know that "guaranteed" or "safe" returns are very low right now. If you're getting much more than 1% annually, you're having to take some risk of loss. The higher the potential returns, the greater the risk.

So even if you could find an investment that promised to return 10% to 13% a year, there are no guarantees such returns would last, plus you would be at risk of losing some or all of your investment. A down draft in the market or an extended vacancy in your real estate holdings could cause you to dig into your principal.

That's why financial planners typically advise their clients not to expect to take more than 4% a year or so out of their portfolios if they expect those portfolios to last. If you try to take much more out or invest aggressively to earn more, you run a substantial risk of running out of money before you run out of breath.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: When I was 62, I started Social Security and I'm currently saving half of my monthly benefit after taxes (about $750). My decision to take my benefits early was influenced by a financial columnist who suggested that if I started at 62 and invested half or more of it until I reached full retirement age, the lower early benefits would be matched by the investment returns by the time I'm 85. Is this advice still reasonable?

Answer: In today's investing environment, it's hard to match the guaranteed annual return you get from delaying Social Security benefits. You may do better investing in the stock market, but there isn't an investment that can guarantee 6% returns right now, which is the approximate amount Social Security benefits increase annually between the earliest age you can take benefits (62) and your full retirement age (currently 66). The higher benefit you get by waiting is then increased by inflation adjustments each year, making it an even harder target to beat.

That's not to say it can't be done. In your case, it's too late for second thoughts anyway. But most people are better off waiting, if they can afford to do so.

There are other good reasons to delay, even if you're an investing genius. If you're married, your spouse would be eligible for a survivor's benefit should you die first. That benefit is equal to the Social Security check you've been getting. A bigger check could make it easier for him or her to make ends meet down the road.

Spouses who wait until full retirement age also have the option of taking spousal benefits first, and then switching to their own benefits later, after those benefits have had a few more years to grow. When you take benefits early, you lose the option to switch.

Even if you're not married, you can look at Social Security as a form of longevity insurance. A larger benefit could be a big help if you live a long time and spend down your other assets.

Hopefully you understood all this before you put your retirement plan into motion. If you didn't, then your situation could serve as a cautionary tale for anyone who's trying to make decisions about retirement based solely on his or her own research. It's vitally important to get a second opinion from a fee-only comprehensive financial planner. Even the most ardent do-it-yourselfer can miss important nuances when it comes to retirement, and those nuances can have a dramatic effect on your future quality of life.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I read your response with interest regarding the two sons in their 60s who were pressuring their parents into taking a reverse mortgage, according to a neighbor who wrote to you about the situation. You may be correct that the sons are trying to get an early inheritance, but you may also be very wrong. The sons may feel well off enough that they don't need an inheritance and that the money would be better spent by the parents to enjoy their remaining years.

As a reverse mortgage loan officer, I've had seniors who are not cash-poor and house-rich go on extended vacations, purchase income properties, buy long-term healthcare policies and fund a research and development project for an invention, to name a few uses. I even know someone who bought a Ferrari, which had been a lifelong desire.

Reverse mortgages are no longer considered to be a loan of last resort. They are, in fact, a source of tax-free cash used in a variety of ways such as preserving and prolonging taxable cash assets, and for seniors who don't need cash to live on, they may be used by their financial planners for arbitrage purposes.

By the way, I did like your reference to elder care attorneys. Many seniors think it's a waste of time or way too expensive, but I frequently refer my clients to them as well. They are almost always able to justify the expense in the savings they produce for their clients.

Answer: While there can be many reasonable uses of reverse mortgages, remember that the parents in this case are in their 90s. This may not be a time in their lives when they're longing for adventure travel, hot cars and investment real estate. It's certainly not a time in life when they could buy affordable long-term care policies.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I just read your column about the neighbor's concern that an elderly couple was being pressured by their sons to get a reverse mortgage. I am glad you mentioned the possibility of fraud by the sons. The elderly are vulnerable and need advocates.

The concerned writer needs to consider another option. Maybe the elderly couple is not doing as well financially as they portray. I was once a concerned neighbor to an elderly widow. As a ploy to remain independent, she was not always upfront about how well (or not well) she was doing. In her case it was health issues that she would hide or downplay (money was not an issue). Though all the neighbors cared and looked out for her, we did not have all the facts that the family had and the family was not aware of all we knew. The concerned neighbor should reach out to the sons. Hopefully the sons are looking out for their parents' best interests and the neighbor can assist the sons in that common goal.

Answer: Your neighborhood is to be commended for trying to help an elderly person in poor health. Intervening in a financial matter, however, could be fraught with peril and lead to an ugly confrontation with the sons. That's why directing the parents to an elder law attorney — one affiliated with the National Academy of Elder Law Attorneys at http://www.naela.org — probably would be a better course. The attorney could better protect the parents against potential financial abuse while assessing whether they might need more help than they're letting on.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: My father-in-law's spouse recently died. He is 89 and not in very good health. He has assets of about $3 million and lives in a state (Pennsylvania) that has an inheritance tax. What can he do to avoid state taxes and make sure his assets go where he wants them to go? He does not like to talk about these things but I'm trying to help. I have no interest in benefits to myself but I would hate to see his assets go to the state.

Answer: It's one thing to encourage a parent or in-law to set up estate documents that protect them should they become incapacitated. Everyone should have durable powers of attorney drawn up so that someone else can make healthcare and financial decisions for them if they're unable to do so.

It's quite another matter to urge a potential benefactor to make sure the maximum amounts possible land in inheritors' laps, especially if he or she doesn't want to discuss the matter. You may need to accept that not everyone is interested in minimizing taxes for his heirs. Your father-in-law's resistance to talk about these things is a good indicator that you should back off.

It's not as if the majority of his assets will wind up in state coffers anyway. Although Pennsylvania is one of the few states that has an inheritance tax, the rate isn't exorbitant for most inheritors. (Unlike estate taxes, which are based on the size of the estate, inheritance taxes are based on who inherits.) In Pennsylvania, property left to "lineal descendants" — which includes parents, grandparents, children and grandchildren — faces tax rates of 4.5%. The tax rate is 12% for the dead person's siblings and 15% for all others. Surviving spouses are exempt.

If he were interested in reducing future inheritance taxes, your father-in-law could move to one of the many states that doesn't have such a tax. He also could give assets away before he dies, either outright or through an irrevocable trust. He may not be interested in or comfortable with any of those solutions. If he is, it's up to him to take action. If he needs help or encouragement, let your wife or one of her siblings provide it. In estate planning matters, it's usually best for in-laws to take a back seat.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I try to watch out for my neighbors, a married couple in their early 90s. Two of their three sons, who are both in their 60s, want them to get a reverse mortgage. The couple's house is paid off as well as their cars. They pay all their monthly bills with Social Security and his pension. They have a living trust as well. Neither I nor the couple see any reason or upside but the sons are pressuring. Any input?

Answer: A reverse mortgage is typically a last-resort option for elderly people who are strapped for cash and who have few options for generating income other than tapping their home equity. The couple you're describing does not seem to fit that profile.

The sons, however, may fit the profile of greedy relatives who can't wait for their inheritances and who are trying to get their mitts on some money early (possibly squeezing out the third brother).

That assessment may be too harsh, but you might encourage the couple to talk to the attorney who drew up their living trust about this. If that attorney isn't experienced in helping the elderly protect themselves, a field known as elder law, you could help them find someone who is by getting referrals from the National Academy of Elder Law Attorneys, http://www.naela.org. If the two sons have any role in handling their parents' money should the parents become incapacitated, it might be prudent to replace them or at least name another trusted party to serve with them.

Your neighbors also should consider letting the third son know what his brothers have been trying to do. In some families, the best defense against greed is an ethical relative who can keep his eye on the rest.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: In recent columns you've been discussing mandatory withdrawals from IRAs. Since these minimum required distributions are treated as income for tax purposes, can I use that money as the income necessary to make an IRA contribution this year? I am retired and lucky enough not to need the funds for current expenses.

Answer: Sorry. You need earned income, not just income, to make IRA contributions. For the purposes of an IRA, earned income includes wages, salaries, commissions, self-employment income, alimony and separate maintenance and nontaxable combat pay. It does not include earnings and profits from property or income from interest, dividends, pensions, annuities, deferred compensation plans or required minimum distributions from IRAs.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I have one comment in response to the reader who wondered whether she had to take minimum distributions from an IRA at age 70 1/2 even though she was still working. As you pointed out, she can defer taking minimum distributions from a 401(k), but she must take them from her IRA. I would point out that many 401(k) plans permit transfers from IRAs. Once the IRA becomes part of the employer plan, the transferred assets are no longer subject to required minimum distributions, as long as the employee continues working full time. This may be a viable option for someone who wants to delay or reduce the size of a mandatory IRA withdrawal.

Answer: Many people are familiar with the idea of rolling a 401(k) balance into an IRA when they leave a job. They may not realize they can roll money the other way as well if an employer permits it.

There are still several issues to consider before you transfer IRA money into a 401(k), said Mark Luscombe, principal analyst for CCH Tax & Accounting North America.

First, the rollover may not include any non-deductible contributions to the IRA. If the money in the IRA came entirely from tax-deductible contributions or from a 401(k) rollover, this won't be a problem. If you made non-deductible contributions, they wouldn't be eligible for transfer into a 401(k), Luscombe said.

"All of the sums rolled into the 401(k) plans must be funds subject to tax and not sums representing basis in the IRA," Luscombe said. "If non-deductible contributions were made, only the taxable portion of the IRA may be rolled into the 401(k) plan."

Another issue is that 401(k)s typically offer fewer investment choices than IRAs. Also, compare the fees with what you're paying with your IRA. Some 401(k)s are run efficiently and give workers access to extremely inexpensive institutional funds, for example, while others lard on various account fees.

A final issue is that you're likely to have less access to the funds in your 401(k) than you would with an IRA, Luscombe said, should you need to tap the cash. Many plans allow only hardship withdrawals from 401(k)s, although you may be able to access up to half of your funds with a retirement plan loan. Of course, if your intention is to delay required minimum distributions as long as possible and you won't need the money, this point may not be a deal breaker.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: You recently answered a reader who wondered whether he could delay mandatory distributions from his traditional IRA because he was still working. You said correctly that he could delay taking required minimum distributions from a 401(k) but not an IRA. But as long as the questioner is working full time and meets the other tests, he could contribute to a Roth IRA. That would allow him to re-invest part or all of the required distribution. Tax would have to be paid on the distribution, but the money could continue to be invested in an account that isn't taxed on the earnings annually.

Answer: That's an excellent point. Withdrawals from IRAs, SEPs, SIMPLE IRAs and SARSEPS typically must begin after age 701/2. The required minimum distribution each year is calculated by dividing the IRA account balance as of Dec. 31 of the prior year by the applicable distribution period or life expectancy. (Tables for calculating these figures can be found in Appendix C of IRS Publication 590, Individual Retirement Arrangements.)

Anyone who has earned income, however, may still contribute to a Roth IRA even after mandatory withdrawals have begun, as long as he or she doesn't earn too much. (The ability to contribute to a Roth begins to phase out once modified adjusted gross income exceeds $112,000 for singles and $178,000 for married couples.) There are no required minimum distribution rules for Roth IRAs during the owner's lifetime. As you noted, the contributor still has to pay tax on the withdrawal, but in a Roth IRA it could continue to grow tax free.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I'm working as a contractor in Afghanistan. Since we are overseas in a combat zone, our pay is nontaxable. Can I contribute some of this untaxed money to a Roth IRA and still be able to withdraw it tax free in retirement? I've heard that's true, but the way I read the law it seems that the money has to come from "taxable" wages or something along those lines. I need clarification.

Answer: If you were serving in the military, rather than as a contractor, you would be able to contribute some of your untaxed combat-zone pay to a Roth IRA and have tax-free withdrawals in retirement. That's a unique perk of the military, however.

Service members' tax-free combat zone pay qualifies as income for purposes of making an IRA or Roth IRA contribution because of the 2006 Heroes Earned Retirement Opportunities Act, said Joseph Montanaro, a certified financial planner with USAA.

If your pay is tax free as a contractor, it's probably because you qualify for the foreign earned income exclusion, which protects some or all of your pay from U.S. taxes (up to $95,100 for 2012), Montanaro said. Your eligibility for this exclusion has nothing to do with working in a combat zone. It has to do with your residence or physical presence abroad.

Income that is excluded this way cannot be used as compensation for the purpose of making an IRA contribution, Montanaro said. It would, however, have to be included when determining your eligibility to make a Roth contribution.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I just turned 70. Must I draw now from my IRA? I still work full time. I heard from one investment company representative that since I work, there is an exemption that I may not have to start withdrawals. Is this true?

Answer: Withdrawals from retirement plans typically must begin after age 70-1/2. You can postpone withdrawals from your company's 401(k) plan past the typical required minimum distribution age if you're still working, but not from traditional IRAs.

"An IRA owner must commence distributions from an IRA by April 1 of the calendar year following the year in which the IRA owner turns 701/2," said Mark Luscombe, principal analyst for tax research firm CCH Tax & Accounting North America, "regardless of whether they are still working or not."

With 401(k) plans, required withdrawals can be delayed to April 1 of the year following the year you retire, unless you're a 5% or more owner of the business, Luscombe said.

It's important to get this right, since failing to make required minimum distributions triggers a tax penalty of 50% on the amount not withdrawn that should have been. The required minimum distribution rules apply to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans, the IRS says, as well as to traditional IRAs and IRA-based plans such as SEPs, SARSEPs and SIMPLE IRAs. Required minimum distribution rules also apply to Roth 401(k) accounts, but not to Roth IRAs while the owner is alive.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Dear Liz: I am approaching being able to retire in three years at 56, but I'm really concerned with the current market conditions. I have around $320,000 in 401(k) and 457 accounts now, all of it invested in stocks. Should I scale this back to more moderate allocations? My pension will pay me around $5,200 a month, so I do not anticipate needing to withdraw from my investments before age 59.

Answer: Even if you've been a die-hard do-it-yourself investor until now, it's time to get help. Retirement decisions can be incredibly complicated, and you may not have time to recover from mistakes.

A fee-only financial planner would ask, among other things, what your current living costs are and what additional expenses you expect, such as buying another car, taking trips and so on. Those details can help determine whether your savings are adequate. The planner also would ask you how you plan to pay for healthcare in retirement, since Medicare doesn't kick in until age 65, and an individual policy at your age could eat into that pension check. Even with Medicare, Fidelity Investments estimates, a 65-year-old couple retiring this year would need $240,000 to cover medical expenses throughout retirement — not counting any money they might need to pay for nursing home or other custodial care.

What a planner probably wouldn't do is approve having 100% of your investments in stock at any age, even with a nice pension. You may have time to ride out another market downturn, but watching half of your life savings disappear might increase the chances you'd sell out in a panic. Having a more moderate allocation that includes bonds and cash could help cushion those market swings and keep you invested.

You can get referrals to fee-only planners who charge by the hour at the Garrett Planning Network, http://www.garrettplanningnetwork.com. If you're looking for fee-only planners who charge a retainer or a percentage of assets, you'll find those at the National Assn. of Personal Financial Advisors, http://www.napfa.org. NAPFA has tools for consumers at http://www.napfa.org/consumer/Resources.asp and the Financial Planning Assn. has tips on choosing a financial planner at http://www.fpanet.org/FindaPlanner/ChoosingaPlanner/.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."

Back when people from my parents' generation were first planning their lives together, most married couples looked forward to working hard for a few decades, buying a house, raising a family and then retiring together while they still had enough money and energy to travel and pursue favorite hobbies.

Some couples do manage to pull this off and thrive; but for many others, any of a host of obstacles can block their ability to retire at the same time. For example:

• Thanks to periods of unemployment, home-value decline or 401(k) account loss suffered during the Great Recession, many couples simply don't have enough money to retire together comfortably.
• If there's a significant age difference, one spouse may not have accumulated enough Social Security credits to qualify for a benefit by the time the other is ready to retire.
• Women often worry that the couple hasn't saved enough since they're statistically likely to survive their spouses – often for a decade or more.
• One spouse must continue working to supply employer-provided medical coverage until both reach Medicare eligibility age (65 in most cases).
• One spouse is just hitting his or her stride, career-wise, and isn't ready to slow down.

Among couples who have managed to save enough to retire together, when it comes time to pull the trigger many realize they haven't fully agreed on where or how to retire; or they discover that their wishes have diverged over the years. This can put tremendous strain on a marriage if you're not willing to compromise and talk things through.

Long before you actually retire, ask yourselves:

• Should we downsize to a smaller dwelling or even move to a retirement community?
• Sell the house, buy a trailer and live like nomads for a few years?
• Move to a warmer climate or to be nearer our grandchildren?
• Move to a state with lower taxes or cost of living?
• Start a small side business to keep money rolling in?
• Are we finished supporting our children financially?

Even before asking those tough questions, you already should have begun estimating your retirement income needs. Social Security has a helpful online Retirement Estimator that can help (www.ssa.gov/estimator). After you've explored various retirement scenarios, consider hiring a financial planner to help work out an investment and savings game plan, or to at least review the one you've devised.

Along with the financial impact retirement will have on your marriage, keep in mind that this may be the first time that you've been together, day in and day out. Many people are so consumed by their jobs that they haven't taken time to develop outside interests and hobbies. Well before retirement, you and your spouse should start exploring activities and networks of friends you can enjoy, both together and independently. Consider things like volunteer work, hobbies, athletic activities or even part-time employment if you miss the workplace interaction and need the money.

And finally, if your plan is to have one spouse continue working for a while, try living on only that one salary for a few months before retiring as an experiment. This will give you an inkling of how well you'll do financially and whether you might both need to keep working to amass more savings.

Article courtesy of Visa Financial. By Jason Alderman

Dear Liz: I work for a small company that doesn’t offer the benefits large companies do, such as a 401(k) retirement account. My husband is a federal employee who contributes 10% to his Thrift Savings Plan at work, and we contribute the maximum to our Roth IRAs. Is there another avenue to save for retirement that would be similar to a 401(k) for me or should I just have my husband ramp up his TSP contributions? We’re both 29 and have $35,000 in retirement accounts and $60,000 in other savings programs, mutual funds and money markets. We own our house (14 years left on a 15-year mortgage), have no student loan debt and have one car loan for less than $10,000. I think I’m on track, but I know it’s better to save early and I’m worried that since I don’t have a 401(k) I’m missing out on some peace of mind.

Answer: You two appear to be nicely on track with your finances, but if you want to retire early or otherwise boost your retirement funds you have several options.

The easiest would be to simply have your husband contribute more to his account, but you also could open a joint or individual brokerage account and invest for retirement through that. You wouldn't get a tax break for your contributions, but your gains could qualify for favorable capital gains rates.

Another option is to start a sideline business and contribute some of your profits to a simplified employee pension, or SEP, IRA. Self-employed workers have several options for retirement savings, including solo 401(k)s and even traditional pension plans, but the SEP is an easy way to start.

Liz Weston is "The most-read personal finance columnist on the Internet" (Nielsen/NetRatings) and author of "The 10 Commandments of Money" and "Your Credit Score."