Retiring

It isn't easy to know for sure what your expenses will be after you retire. You won’t have some of the old expenses you had during your working years, but you may have some new ones. So it pays to think about all the things you may need money for in the future.

Cashing out can cost you.

When you cash out retirement savings, not only do you give up the compound earnings that will keep your money growing, you can also find your money taxed as earned income, plus you can incur a 10% early withdrawal penalty.

		Staying Invested in Retirement			Cashing out today
Value today	Annual Rate of Return	5 Years1	15 Years1	30 Years1	Value after taxes and penalties2
$1,000	5%	$1,276	$2,079	$4,322	$600
$5,000	5%	$6,381	$10,395	$21,610	$3,000
$25,000	5%	$31,907	$51,973	$108,049	$15,000
1 Sample if invested in a tax-deferred account with 5% annualized return. 2 Assumes a tax rate of 30% and 10% IRS penalties

Will Your Housing Costs Rise?

By the time you retire, you may have paid off your mortgage and home equity loans. If you’re no longer paying a mortgage, your expenses will be reduced by the amount of the monthly payment. Keep in mind, though, that the furnace, roof, and other costly items may eventually need to be replaced. And you’ll still have to pay maintenance costs and property taxes.

Health Insurance May Cost You

Your health-care costs may be higher in retirement. In fact, health care may be one of the biggest line items in your budget. Unless your employer offers comprehensive retiree health insurance, you may want to consider purchasing a supplemental policy (known as a Medigap policy) to pay costs that Medicare doesn’t cover.

Retiring and Rollovers: Staying in Control of Your Retirement

Deciding what to do with the money in your company retirement plan is one of the most important choices you may ever make. Here you’ll find expert information to help you with that choice.

Helpful Terms

• Rollover: moving money from an employer sponsored retirement plan—like a 401(k)—into a personal retirement plan—such as an IRA—while keeping the tax benefits.
• IRA: Individual Retirement Account. A personal account, invested in an interest-gaining investment vehicle in which a person can make annual tax deductible contributions.
• Cash-Out: Taking money from your retirement account prior to retirement. Cash-outs are subject to federal withholding tax, and are subject to the 10% early withdrawal penalty if not rolled over into an IRA or other qualified account.

Why is a rollover a smart choice?

Along with gaining more control over your money, there are two big benefits to rolling over retirement accounts. First, you keep your retirement savings for their intended purpose. Second, you avoid taxes and penalties. If you cash out, the money you take will be taxed as income at your current federal and state rates, plus if you’re under 59½ years of age, you’ll generally pay a 10% federal penalty for early withdrawal. But if you move money from one tax-deferred retirement account to another, you will not pay taxes or penalties. Taxes are deferred until you eventually take the money out, which typically occurs after retirement when your income level and your tax rate are oftentimes lower.