A Bit of Relief for Stock-Shocked Retirees

For other retirement accounts, minimum distribution requirements kick in the year you turn 70½. But, as mentioned above, you can postpone the first distribution until April 1 of the following year and then later in the year take a second withdrawal.

The size of the required withdrawal is based on your age and the size of your retirement accounts as of Dec. 31 of the previous year.

That is the reason many older investors started howling in September and October when the stock market took its deepest dives. They knew the withdrawals they had to make by Dec. 31, 2008, were going to be based on significantly higher values from Dec. 31, 2007.

Many retirement accounts easily could have lost 40 or 50 percent of their value during that one-year span, depending on how the accounts were invested.

Lost Earning Potential

For example, suppose a retiree owned a mutual fund in his IRA that was worth $100 a share on Dec. 31, 2007, and that, based on his age and the account value as of that date, he was required to withdraw $1,000 by the end of 2008. That 2007 year-end value meant he would have needed to liquidate 10 shares of that fund to make his required withdrawal.

But suppose, by Dec. 31, 2008, that account might have only been worth $75 a share. Then he would be faced with selling 13.33 shares to meet his $1,000 required minimum distribution.

The sale of the additional 3.33 shares may not sound like much but it represents lost earning potential from capital gains and reinvested dividends.

Thanks to this year's waiver, our hypothetical investor should be able to recover somewhat by avoiding the need to sell additional shares in 2009.

Let's just hope for an economic recovery that paves the way to stock market gains that eases last year's pain for all investors, retirees and non-retirees alike.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.

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