Retiring In 2011? What You Need To Know
Although the markets made something of a comeback in 2010, many of those who are contemplating retirement in 2011 are still uneasy about the current financial environment. Their situation is further complicated by several key pieces of legislation that passed this year, as well as the current and future political climate in America. But there are still several measures that those who quit working next year can take to increase their odds of retiring successfully. (For related reading, also check out Top 6 Ways To Ruin Your Retirement.) IN PICTURES: 9 Ways To Use A Tax Refund
Keep Up with Obamacare
The ramifications of this major bill introduced by the Obama Administration may have a substantial impact upon the type and cost of health care that retirees will receive in the coming years. However, the shift of power to the republicans in the November, 2010 elections may ultimately block this legislation from taking effect.
Maintain the Status Quo in IRAs and Retirement Plans
Congress decided in December of 2010 to freeze all retirement plan contribution limits and other thresholds through 2012. Those who need to begin taking distributions or roll over their plans can now use the current limits to compute their withdrawals accordingly.
Alter Your Estate Plan if Necessary
Taxpayers were allowed to leave an unlimited amount of assets to heirs free of estate tax in 2010. For the next two years, a $5 million dollar limit per taxpayer will be imposed ($10 million for married couples). Those with credit shelter trusts or other sophisticated estate planning tools may need to alter the amounts in these trusts or the level of death benefits in their life insurance policies accordingly.
Tiptoe Back Into the Market
Those who have been sitting on the sidelines waiting for the markets to calm down may want to consider dipping a foot back into equities in the coming year. A dollar-cost averaging program may be good way to do this, as this will allow investors to take advantage of continued market swings by purchasing fewer shares when prices are high and more when they fall. (For more important information, see Choosing Between Dollar-Cost And Value Averaging.)
Expect Continued Low Interest Rates
Most economists believe that interest rates will stay at or near their current level for the foreseeable future. This means that investors who seek income may need to consider some higher-risk alternatives to traditional CDs and other guaranteed instruments, such as preferred or utility stocks or callable CDs. Growth and income funds and fixed annuities may also provide higher payments with a reasonable amount of risk.
IN PICTURES: 10 Retirement-Wrecking Moves
This advice was given in last year's article on retiring in 2010 and is every bit as relevant now. The turbulent political and economic climate dictates that a broadly diversified portfolio is the best defense against unexpected changes and also provides the best exposure for new opportunities.
Remember the Timeless Principles
Creating a sensible budget, sticking to it and keeping your retirement plan distributions to a minimum are vitally necessary for a successful retirement in any year. Don't let current circumstances dictate the rest of your retirement.
Convert Your IRA to a Roth Before Year-End
Those with large IRA balances that they wish to convert to Roth IRAs should do so in 2010, if possible. Although the $100,000 MAGI restriction has been lifted, taxpayers who convert their IRAs to Roths in 2010 can spread the tax bill out over the next two years. This will not be possible in 2011. (For more information, see Should You Convert To A Roth IRA?)
The Bottom Line
Above all, remember that whatever is happening in the markets and Congress now is not going to happen forever. Flexibility is the key to successful retirement planning now and in the future. There will always be a reason why this year is not a good year to retire, but don't let this type of thinking dictate your life.
Find out what happened in financial news this week. Read Water Cooler Finance: Barack Obama Vs. The World.