Refresh Your Financial Life: Retirement

The market rally of 2009 helped Americans make up some the ground they lost in the crash. But to make the most of the ongoing economic rebound, many investors will have to tweak their game plans. SmartMoney magazine’s December cover story, “Refresh Your Financial Life,” offers strategies for dealing with the shifting landscape.

It was there, almost in reach—but now retirement is again a distant goal for many Americans. According to a Pew Research survey, 78 percent of workers over 50 say they will have to save significantly more as a result of recession-related losses. But changes in tax laws could give savers a way to make more of the assets they’ve got. Starting Jan. 1 households will be able to move savings from traditional IRAs and 401(k)s to a Roth IRA regardless of their income (currently, there’s a $100,000 cap). Roth accounts carry fewer withdrawal rules than traditional accounts, and because withdrawals aren’t taxed, they’ll stretch further in the future if income taxes rise, as many analysts expect.

There’s one big catch: People who roll money into a Roth owe taxes on what they convert. Investors will have two years to pay the resulting tax bill. But Jennifer Immel, senior wealth planner with PNC Financial in Naples, Fla., says that those considering a rollover should start saving now, especially since using money from retirement accounts to cover the taxes “is almost always a bad idea” and can wipe out the gains you’d get from switching.

With the employment picture still shaky, many people have started their retirements unexpectedly early. Tim Neely of Martinsburg, W. Va., took a buyout from Verizon in September after 37 years as an engineer with the company, but at 60, he hadn’t given much thought to managing a nest egg as his only source of income. “It’s scary, I tell you what,” he says. With the guidance of his financial adviser, Jamie Cox, Neely got rid of debt, paying off a car and several credit cards. And instead of taking his $66,000 severance payment in a lump sum, he’s taking monthly installments, building what Cox calls “a bridge to Social Security.” Neely put about a quarter of his savings in a fixed annuity to generate a guaranteed income, and placed the rest in bonds and dividend-paying stocks—keeping his money liquid in case his plans change unexpectedly again.