Watch Out, Boomers, Here Comes 70

Mandatory payouts from savings plans may trigger new taxes time you’ve been taught to build, save, invest, sacrifice. Suddenly the government at age 70 ½ says, ‘Now we’re sick and tired of waiting for you to drop dead. We want our money back.’”

The scale of distributions for boomers, who were born between 1946 and 1964, will put financial advisers in uncharted territory. “This year is the largest population of first-timers taking their minimum distributions we’ve ever seen,” says Maura Cassidy, director for retirement products at Fidelity Investments. “That’s over 90,000 clients. Withdrawing is a new concept for these people, and we want to make sure they do it right, because of the 50 percent penalty.” She says the average IRA balance for its 70-year-old clients is about $200,000.

The IRS has a worksheet to help you determine how much to withdraw each year. The RMD in 2016 starts at 3.6 percent of the yearend balance on your tax-deferred retirement accounts and grows each year: By age 80 you’re taking out 5.3 percent, and by age 90, 7.9 percent. Although the 50 percent penalty on missed or undersize withdrawals is steep, tax filers can ask the IRS to waive it. “File Form 5329 with your tax return and say you missed it because you were confused or had poor financial advice,” Slott says.

Managing your RMDs isn’t the only financial challenge awaiting those who turn 70. That’s also the age when an individual can begin collecting the maximum benefit for Social Security. Those who opt to receive benefits at the earliest age of 62 receive about 25 percent less per month than a 66-year-old retiree and 43 percent less than a 70-year-old one. Boomers who have the financial wherewithal should definitely hold off until 70.

Still, delaying the payouts can raise

Projected share of U.S. population 70 or older

18%

9%

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