Mellody Hobson: Take Stock Before Retiring

The baby boomer generation, those born between 1946 and 1964, account for more than 28 percent of the population -- approximately 76 million people. According to American Express Financial Advisors, these boomers own nearly $3 trillion in IRA accounts and $2.2 trillion in 401(k)s -- money which will soon be available to them.

In fact, beginning July 1, the oldest of the baby boomers will turn 59 ½, making them eligible to withdraw money from their retirement savings accounts without a tax penalty. If you are one of these boomers, there are some important factors to consider before tapping into your retirement savings.

1. Take Stock

It is extremely important to gain a true understanding of all of your assets as well as where your income will come from during your retirement years. The bottom line -- you must know what you have. Take inventory of the following:

      Social Security benefits
      401(k) plan assets
      IRA assets
      Potential inheritance income
      Home value
      Insurance policies
      Annuities
      Other savings and investments

Additionally, it is vital to come to a realistic understanding of your lifestyle choices and where you view yourself in retirement. Finally, depending on your career history, you may have retirement money in a few different 401(k) plans as well as an IRA. In order to keep track of all your retirement dollars, it is best to roll all of your tax-deferred retirement assets, such as your 401(k) and Traditional IRA, into one IRA account.

2. Keep cash on hand

It is a good idea to set aside at least two to three years of cash to cover your day-to-day incidentals while in the first stages of retirement. Having this cash cushion will allow you to avoid having to sell your investments in a down market should one occur early in your retirement years.

3. Liquidate taxable accounts first to preserve tax free growth

Although you can begin taking withdrawals from your tax-deferred accounts at age 59 ½, you are not required to take withdrawals until age 70 ½, so you will want to continue to let these assets grow tax-free for as long as possible. If you need income, consider liquidating taxable accounts holding individual stocks and stock mutual funds.

4. Delay drawing down Social Security as long as possible

Putting off retirement not only means more earned dollars and additional time for your investments to grow, but can also result in a higher value of benefits received. For example, a 40-year-old who makes $40,000 a year and opts for Social Security at the earliest possible time (62 years and 1 month) would be entitled to $955 a month in benefits. However, if the same individual delays retirement another eight years (age 70), they would receive $1,751 in benefits -- a difference of almost $800 a month.

5. How low can you go?

You want to withdraw the least amount possible to sustain your lifestyle to avoid running out of money. In fact, one or two percentage points can make a huge difference.

Mellody's Math:

If you have a balance of $250,000 upon your retirement, a small variance in the percentage withdrawn can be significant:

      At a rate of 4 percent a year, (assuming you stick with the initial balance and the identical amount) your balance would be zero after 25 years
      With a 6 percent annual withdrawal, your balance would be zero in about 17 years
      At 10 percent, your balance would be zero in just 10 years

6. Stay invested

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