Help for Those on Either Side of Retirement

Financial planners often say that the most important 10 years in an investor’s life are the five years before retirement and the five years immediately after.

That’s when vital issues are decided that can have profound effects on retirees’ lifestyles, tax burdens and estate plans. Beneficiary selection, withdrawal rates and required minimum distributions are just a few of the complicated issues investors must face when tapping their retirement funds.

Yet retirees and pre-retirees often complain, with some justification, that the media and financial institutions concentrate far more on those accumulating for retirement than they do on those facing or actually in it.

Some financial companies pay attention, however, and are aiming more information at this market. Some of what is offered is free, but most investors should be prepared to spend some money to get the kind of help they’ll need.

Financial services companies know a burgeoning and potentially lucrative demographic when they see one. The current crop of people aged 55 to 64 is expected to swell from 24 million this year to 35 million in the next 10 years.

Moreover, this is a group that clearly is looking for help. Last year, more than $200 billion was rolled over from 401(k)s and other retirement plans into IRAs, according to research by Fidelity Investments. Fidelity says 58% of those who rolled over money did so at least in part because they wanted more help in managing those assets.

Obviously, the group of people over 65 is about to grow as well. Research by Fidelity rival T. Rowe Price shows that this older contingent will grow to about 40 million in the next 10 years, and that they will have a whopping $5 trillion to invest.

T. Rowe Price has responded to the need for more retirement planning information with a variety of tools for the do-it-yourselfer. The company recently unveiled a new free calculator at its Web site that uses probability analysis to help investors determine if they have enough set aside to retire.

The retirement income calculator at https://www.troweprice.com/ric uses what’s known as Monte Carlo simulation to generate 500 possible outcomes, including bull and bear markets of various intensities and durations, and comes up with a percentage figure. That figure represents the investor’s chances of success--in other words, how likely it is that the retirement nest egg will provide enough money for the rest of the investor’s life.

The retirement income calculator is an intriguing toy to play with, whether you’re facing retirement or trying to determine just how large an after-tax Super Lotto jackpot you’d need to quit working for good. But it’s not something you’ll want to rest your retirement upon, since the calculations do not allow for enough variables.

Like the simple retirement-savings calculators that dot most mutual fund Web sites, it’s not possible to customize the calculations beyond basics such as retirement age, life expectancy and withdrawal rates. The mutual fund company is hoping users will be intrigued enough to explore T. Rowe Price’s other, more personalized services for investors, such as its Retirement Income Manager, which costs $500 and combines an analysis of your situation with a specific asset allocation mix and access to a human planner if you have additional questions.

Vanguard Group, another mutual fund provider favored by the do-it-yourself crowd, also offers a retirement planning analysis service for $500.

Fidelity, meanwhile, is concentrating much of its education efforts on reaching the 60,000 financial advisors who recommend and purchase Fidelity funds for their clients’ portfolios. Fidelity Investments Institutional Services Co., the company’s arm for advisors, last month introduced a Web-based package of tools for planners hoping to advise their clients on rollover and distribution strategies.

Fidelity has some information for the near-retirees themselves on its Web site. Part of the information comes from Margaret A. Malaspina’s useful book “Don’t Die Broke: Taking Money Out of Your IRA, 401(k), or Other Savings Plan--and Creating Lasting Retirement Income� (2000, Bloomberg Press), which is a good resource for anyone approaching retirement.

But Fidelity’s approach, at least for now, is that retirement issues are complex enough to require a guiding hand, which is why it’s buffing up its services for advisors.

There’s something to be said for that viewpoint. Many of the tax and estate issues surrounding retirement are baffling for professionals, let alone laypeople. And the consequences of bad decisions can be dire.

Name the wrong beneficiary, for example, and you could increase your own tax bill unnecessarily during your lifetime or saddle your heirs with a too-large debt to Uncle Sam. Choose the wrong calculation strategy for your required minimum distributions, and you’re stuck for life with your mistake, since your decision can’t be changed (at least under current laws). Withdraw too much from your retirement accounts, and you risk late-life poverty; take out too little and you could end up missing some of the fun you saved so much to enjoy.

None of these issues has one-size-fits-all answers, and often the right solution can be found only after a detailed assessment of the investor’s entire financial situation.

That doesn’t mean you need to turn your portfolio over to a broker or other financial advisor, especially one who may not know any more about minimum distribution incidental benefit rules than you do.

It does mean that, in addition to educating yourself on the topic, you might want to visit a qualified tax expert and an estate-planning attorney before setting your retirement plans into stone. The information financial services companies are beginning to provide to pre-retirees can help guide you, but nothing can replace an informed and objective second opinion.