STORY TOOLS

• E-mail story
• iPod friendly
• Printer friendly

Tell us about it

• What would you add to this story? Tell us what we missed.
• Do you have photos from this event? Documents we need to see? Share with us.
• Upload photos & videos
• More ways to get your stuff online and in the paper.

More Business

• Christmas Island Style Gala to celebrate Marco’s top community contributors
• Workplace winners, part 1
• The difference an education can make

Share and Enjoy [?]

Every time I see an adult on a bicycle, I no longer despair for the future of the human race. -- H. G. Wells, English Author 1866-1946

Indian Hill on Marco Island is the highest elevation in southwest Florida. Great news during storm surge, but tackling the hill on a bicycle is a grand accomplishment for someone like me.

When I feel like torturing myself I’ll attempt the hill and only by switching down to the lowest gear and steadily pedaling, I reach the peak, huffing and puffing. The reward is coasting down the other side with the breeze whooshing by. But wait, I must pay attention to the speed and watch out for obstacles on the road.

Many of us are cycling through life with the top of Indian Hill in our sights, financially speaking. Challenges don’t disappear at the “top” — they just change.

Distribution is the opposite of wealth creation and accumulation. The ability to generate earned income diminishes while unlimited time to compensate for market losses shortens. Safely transitioning into the distribution phase requires skill and knowledge.

Market risk and purchasing power risk (inflation) and their impact need to be addressed. Temper these with common strategies like asset allocation and staying invested through market cycles.

Ask these questions:

Will my assets last as long as I live?

Could high health care costs like prescriptions and long-term care, or the loss of a spouse leave a surviving spouse with inadequate income?

How does inflation impact future purchasing power?

What trade-offs are necessary in order to achieve balance?

Market loss is a big risk early on because you may not have the time to make up for losses. The impact of specific risks changes over time. People approaching retirement or in retirement that experienced the Enron/WorldCom era can tell you this.

Inflation may not be noticeable at first, but may make a huge difference in purchasing power 10 or 20 years down the road. Where do you think inflation and interest rates are headed?

Changes made to reduce one risk may actually increase another risk. Try pushing a beach ball underwater and it pops up somewhere else. If an investor wants to stay strictly in CD’s they may lessen the risk of market loss, but may also increase the risk of inflation eroding their future purchasing power.

Hopefully you’ll enjoy good health and will be able to work as long as you’d like. The McKinsey Consumer Retirement Survey of 2006 reports 40 percent of retirees had to stop working earlier than planned. Half of this 40 percent stopped working for health reasons around age 54. It’s not too early to start formulating your distribution plan.

How will taxes impact your new lifestyle? Taxable income may be lower after you stop working but don’t let capital gains taxes be a surprise. Lump-sum distributions from an employer sponsored plan could result in a troublesome tax bill. Consider rolling the assets into an IRA and taking distributions on a regular basis rather than all at once.

There are two options when moving funds from a past employer’s 401(k) plan to an IRA:

a) Direct rollover to a new custodian (you don’t receive the funds and there isn’t a taxable event, b) Rollover distribution which may require mandatory withholding and if you’re not eligible for a normal distribution there may be a 10 percent penalty. You must deposit the entire amount to a new custodian within 60 days or it will be taxed as ordinary income.

Do you have low cost basis employer stock in your IRA? Consider taking the stock rather than rolling it into an IRA. By taking the stock you’ll owe tax on your original cost — which may be a smaller percentage of the current value. You won’t owe taxes on the rest of the value until you sell, and then pay a lower federal capital gains tax which is much better than rolling the stock into your IRA and owing ordinary income tax on everything you withdraw.

Tap tax-deferred income last. Let qualified retirement investments and IRS’s grow tax-deferred as long as possible. The exception is if you’re in a low tax-bracket and expect required minimum distributions (RMD’s) from IRAs to be large and taxed at higher rates. Also, another exception to this is a ROTH IRA which grows tax free versus tax-deferred. Generally, take ROTH money last.

Stay alert, plan ahead and ask for help. Establish a disciplined strategy to turn your assets into income and increase your chances for a success ride.

---

Darcie Guerin is a financial adviser and branch manager at Raymond James & Associates Inc. at 606 Bald Eagle Drive, suite 401, Marco Island. Contact her at Darcie.Guerin@raymondjames.com, 389-1041 or toll-free (866) 343-0882.