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To: RealMuLan who wrote (50909)	6/13/2004 4:23:33 AM
From: elmatador	Respond to of 74559

Pitfalls await retirees Those who have been successful nest-egg builders may not realize how much of a challenge it will be to preserve their savings after they have retired. The most overlooked pitfalls, say those in the know, are too much time on your hands and the unexpectedly large bite taxes can extract from your nest egg if you don't devise a preservation plan. The problem for some is that retirement becomes like being on vacation — traditionally a time for loosening the purse strings and living it up. When every day is like vacation, though, it can drain savings at a faster pace than anticipated, or prudent. The recommended way to counter this is to get a part-time job, even if it's nonpaying volunteer work. This offsets the tendency to engage in uninterrupted money-consuming activities. Moreover, it helps replicate working-life conditions and thus eases the transition to a nonworking life. Another way to economize is to take a hard look at whether the old homestead is too much of a drain on your resources. If it's costing too much to maintain, you should think seriously about getting a residence that relieves you of maintenance costs, property taxes and other expenses incurred even when the mortgage is paid off. And if you make a profit on the sale, you can add it to your nest egg, which will serve you well if you outlive actuarial expectations. Tax burdens often blindside retirees, too. When you're working and putting money into tax-deferred retirement savings, traditional wisdom holds you'll be paying income taxes at a lower rate when you withdraw the money. This isn't always the case, though, especially for those whose investments generate substantial portfolios. The biggest shock usually comes when retirees are required to start drawing down tax-deferred retirement savings after reaching 70½ and mandated withdrawals push people into higher tax brackets. Add to this the fact that up to 85 percent of Social Security benefits can be taxed if certain income thresholds are reached, some retirees may end up paying taxes at a higher rate on their nest-egg proceeds than they did on their income while working. There are a number of ways to deal with this challenge, but none will allow anyone to escape paying taxes. They can, however, help ameliorate the tax burden created by income generated from nest-egg withdrawals. What follows isn't meant as a comprehensive tutorial, but rather is offered to alert those interested of the need to plan. What's necessary is to get together with a financial planner and map a tax strategy, or go to the library and read all you can about retirement money management. One strategy most experts agree on for those eligible involves shifting money from 401(k) and individual retirement accounts to Roth accounts while you're still subject to the lowest possible tax rate. Tax must be paid, of course, on the tax-deferred withdrawals, but you'll be able to tap both principal and the investment gains from the Roth IRA later without incurring a further income-tax liability on this part of your nest egg. This is only one tax-planning tactic, though. The important thing to remember is that there is plenty of expert advice out there, both from planners and how-to books, that anyone with a significant nest egg needs to consult. Jerry Heaster's column appears Wednesdays, Fridays and Sundays. Write to him c/o The Kansas City Star, 1729 Grand Blvd., Kansas City, MO 64108; send e-mail to jheaster @kcstar.com; or call (816) 234-4297.