August 31, 2012 - How Much Will My Retirement Required Minimum Distributions Be? - by Morningstar Investment Research
I plan to retire in a few years and know I'll need to take required minimum distributions from my 401(k) once I turn 70 1/2, but I don't have a good sense of how much they'll be. How are they calculated?
Morningstar assistant site editor Adam Zoll tackled this question, saying Investors with 401(k), 403(b), traditional IRA, and other types of retirement accounts must take required minimum distributions, or RMDs, usually starting the year in which they turn 70 1/2. Some employer-sponsored plans allow those who continue working beyond 70 1/2 to delay taking distributions until they retire. As for calculati ng RMDs, the process is relatively straightforward and is based on the amount held in the retirement account and the life expectancy of the account holder. All else being equal, RMDs generally rise as a percentage of the portfolio as the account holder gets older and the number of years of life expectancy decreases. But if an account holder fails to pull enough money out of a retirement account to meet the RMD by the end of a given year, he or she faces a 50% tax on the undistributed amount. Click here to read more.
A Sample Retirement Portfolio Using the Bucket Approach
Traditional strategies for retirement income have included buying an immediate annuity or investing in income-producing assets, such as bonds and dividend-paying stocks. But given that each of those approaches has become more challenging in the current low-interest-rate environment, it's no wonder that so many retirees and pre-retirees have been receptive to another strategy: "bucketing" their portfolio for retirement. Why has bucketing become so popular? First, it bows to reality by acknowledging that all but very wealthy investors will need to tap their principal during retirement; it provides a sensible and easy-to-use framework for doing so. Another big advantage of bucketing is that it's flexible. To help illustrate what an actual bucketed portfolio might look like, Morningstar's Christine Benz created a sample portfolio for a soon-to-be retiree.
Among the other topics we addressed this week:
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Fidelity's Abigail Johnson Takes on Larger Role. Plus, JP Morgan shutters fund, Putnam elevates managers, and Manning & Napier adds to its lineup, and more.
Has This Fidelity Fund Lost Its Luster? An evolving strategy and high volatility dent this option's appeal.
When Active Management Doesn't Pay Dividends. Looking at a manager's active return can shed light on an ability to pick winning stocks.
Investors Return to Fixed Income, Hedge With Passive Equities. In a market cycle driven by macro headlines, investors continue to hedge their exposure.
Russell Investments to Shut Down All but 1 ETF. Legg Mason, IShares, IndexIQ, and Global X all provide details on proposed actively and passively managed ETFs. Plus, the week's best-performing funds.
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