Insights to planning for retirement

Retirement planning was tough even before the stock market went belly up and the economy flopped. Now it’s an issue of critical importance for millions of Americans. Here are some insights and observations that might make it easier to meet the challenge:

•Don’t assume you’ll cash out everything in your retirement accounts as soon as you hit 65.

Some people figure they must become a lot more conservative as soon as they retire, but that’s usually not the case. New retirees spend only about 3 percent of their balances in 401(k) plans more or less immediately after they stop working, according to an Investment Company Institute survey of more than 600 recent retirees.

•Look before you leap if considering withdrawing money from an IRA, especially if you’re younger than age 59 1/2.

You might need the cash to save your home or meet other urgent expenses, but raiding an IRA could stick you with a tax bill and an early withdrawal penalty.

That said, there are several strategies to minimize the financial pain, reports Stanley Reynolds, a certified financial planner at American Financial Associates in Phoenix.

These include penalty-free withdrawals for first-time homebuyers, for education costs, for military reservists called to active duty and for health-insurance costs incurred by people who also receive unemployment benefits.

•If you hold stock-market investments in a traditional IRA, it might make sense to pay the tax now on your holdings and switch them to a Roth IRA. The reason? Future withdrawals from the Roth, including any subsequent gains, will be tax-free later, with no requirement to start withdrawing money after age 70 1/2, as with regular IRAs.

•A simple rule of thumb for retirement investing makes sense, say researchers at Butler University in Indiana.

In general, they suggest people follow the simple guideline of investing a percentage equal to 100 minus one’s age in the stock market. For example, a 50-year-old person would keep 50 percent of a portfolio in the stock market, while someone at 60 would invest 40 percent. The strategy ensures a portfolio grows more conservative as you age.