Why 70 Is the Pivotal Age for Retirement Planning
For retirees, everything changes when they must begin tapping their tax-deferred retirement accounts, says retirement expert Ed Slott.
Christine Benz: Hi, I'm Christine
Benz for Morningstar.com. The first baby boomer turned 70 in early
2016. Joining me to discuss why age 70 is such a pivotal age for
retirement planning is retirement expert Ed Slott.
Ed, thank you so much for being here.
Ed Slott: Great to be back here live in Chicago.
great to have you here in the studio. Let's talk about age 70. A lot of
people focus on age 65. That's maybe the year when they plan to retire,
but a lot of important financial-planning considerations hinge around
age 70. Let's talk about what changes for retirees at that age.
everything changes because of the tax code. As most people know, that's
the change part where you move away from accumulating money. Remember,
you spend 30, 40, or 50 years working, saving, and investing in an IRA
or a 401(k), and the money in these tax-deferred accounts hasn't been
taxed yet. But it can't sit there forever. So, the government, years
ago, decided, "Let's make it age 70 1/2" for some crazy reason--and
nobody knows why. That's the date when they finally tell people, "We're
sick and tired of waiting for you to drop dead--we want our money back."
Now, you have to go in a different direction. Instead of saving and
saving and saving, now they want you to start taking this money
out--whether you need it or not. The government is going to force you to
take that money out, pay tax on it, increase your tax rate, increase
your liability--even if you don't need the money. And you have to do
this for the rest of your life or until your IRA or 401(k) runs out.
They're called required minimum distributions.