How you take money out of your retirement plans is very critical to your financial security If you take too much out too quickly then you may run out of money before you run out of time If you take too little out then you will have the IRS penalizing you for not following the distribution rules.
Without proper planning, taking your hard earned and tax deferred money out of your IRA can cause you undue financial hardship not only for your retirement years but for you spouse if he/she lives longer than you do. If you take too much out too fast then there may not be enough left over to last to the end of the last one living’s life. If the assets in the plan are not the proper ones for both your risk but more importantly your time frame then the market can take money right out of your account without even asking permission.
We are lucky to live in a time when the financial world has many choices of ways to have your money work for you and provide you with great alternatives. These different alternatives range from something as simply as a CD type of account to using several kinds of arrangements to maximize your earning and income potential with minimizing your exposure to market adjustments and risks.
If you try to live very conservatively and make your money last you may succumb to the dreaded IRS under withdrawal penalty. This amounts to a 50% penalty of additional tax on the amount of withdrawal that was short of the required amount. This will eat away at your nest egg and leave you with even less money. This falls under the category of making sure you take your “Required Minimum Distribution” or RMD It is the retiree ‘s responsibility to make sure they have taken at least the minimum out each year not the plan or the IRA custodian. It will be you not the bank or company plan’s fault if you don‘t take enough out each year. The good, well really GREAT news is this however, for this year 2009 the government has allowed anyone who is over the age of 70 and ½ to forgo this years RMD if they so choose. Unfortunately, not everyone is aware of this one time exception to the normal rules of distribution. But it is true! No RMD needed this year. It voluntary if you need to take the money out do so but if you choose not to take out any money then there is no penalty this year.