Retirement Plans area crucial element of every Empty Nesters retirement plan, whether they know it or not.


Managing retirement plans is key element for Empty Nesters trying to live their best life. Lets cover the basics.


Economic security in retirement depends on three income sources: (1) Social Security payments; (2) company pensions; and (3) personal savings. Empty Nesters will have different mixes of these components, but any retirement without personal savings will be a worrisome one. The term personal savings covers a range of assets including home ownership, bank account cash, and traditional brokerage accounts. The most likely sources of income in retirement, however, are “retirement plans.”

Regrettably, arriving at the best retirement strategy can be a tough ask for Empty Nesters. So lets start with one simple piece of advice . Despite all the great information you are about to read, establish a relationship with a knowledgeable financial advisor. Every Empty Nester’s goals and resources will be different, so there is no one-size-fits-all plan.

That said, to sensibly discuss your options and plan for the future you need to arm yourself with knowledge. Lets break down retirement plan basics.


Empty Nesters enjoyed, or are enjoying, careers unlike any in history in terms of mobility. As we job hopped, we accumulated all types of retirement plans. We start by identifying the retirement plan terminology that might apply to you.

Retirement plans can be invested in a variety of assets.
Photo by Andrea Piacquadio from Pexels

Individual Retirement Accounts (IRAs) are accounts based solely on an individual’s contribution. In other words, the employer does not make “matching contributions” to an IRA. A “traditional IRA” allows an individual to contribute before tax dollars so that the amount contributed does not show up as income for the year in which it is earned. Instead you pay taxes on the IRA when you withdraw the money. In contrast, a “Roth IRA” involves contributions of money after taxes so you pay tax on the income the year you earn it, but withdrawals in later years are not taxed.

401(k)s and 403(B)s retirement plans are similar to IRAs but add the element of employer contributions. Obviously, the employee benefits greatly if his money and his employer’s money are working for him on a tax-deferred basis. Most often, a financial institution manages a 401(k) or 403(B) plan for the employer. That means the employee works with the financial institution, not the employer, to manage the account.

Smaller employers who may not be able to administer 401(k) programs can set up SIMPLE IRAs (the employee contributes to an employer-managed plan) or a SEP (the employee and the employer contributes to an employer-managed account). Other variations include profit sharing plans (private businesses allowing employees and owners to take a share of profits in the form of tax-deferred contributions to a retirement plan) and 457 plans (government and charitable organizations compensating employees in part by making tax-deferred contributions).

Whatever form of retirement plan an Empty Nester participates in, there are three basic questions. First, what rules govern my contributions? Second, what rules govern my withdrawals: Third, what rules govern the amounts remaining in the account at my death?


As a starting point for 2020, most people who are 50 years or older can contribute $7,000.00 to both a traditional IRA and a Roth IRA. The basic requirement is earning an amount at least equal to the contribution. Spouses who do not earn income, but file a joint return may still be eligible to make contributions based on the combined income reported on their tax return. Unfortunately, the limit on Roth IRA contributions for high earners may be reduced or eliminated, depending on how much they earn.

Participating in an employee-sponsored retirement plan does not disqualify you from making IRA contributions. And in a big change, starting in 2020, there is no age limit on those who can contribute to IRAs.

Company plans are one of the primary vehicles to supplement retirement income.
Photo by Rebrand Cities from Pexels

Be careful with understanding what it means to be eligible to contribute. Making a contribution and being able to deduct the amount of that contribution are different things. Often, a high-earner will lose the ability to deduct their IRA contribution if they participate in an employer-sponsored retirement plan. On the other hand, if you make an “ineligible contribution” the penalty is a 6% tax on the excess contribution and the income earned. The contributor can avoid the penalty by making a timely withdrawal of the excess contribution and income.

Clear as mud? Here is the bottom line. The rules have relaxed for who can make IRA contributions and how much they can contribute. In almost all scenarios, if you can contribute, you should contribute.


After you have contributed to a retirement plan, you can usually get to the money if you absolutely must have it. The IRS is going to penalize you heavily, however, if you take any money out before age 59 1/2. Most retirement plans allow for loans, rather than straight withdrawals, to avoid this penalty. If you can avoid accessing funds early, do so. If hardship forces you to access funds early and a loan option is available, go that route.

On the other end, the IRS traditionally mandated “required minimum distributions” starting at age 70 1/2. The basic idea behind was a formula that divides the amount of assets in the account by the account holder’s life expectancy for a required annual distribution.

Of course, many of us outlive our life expectancies. So note that the IRS could end up forcing you to reduce your retirement plan account to zero well before you die. The IRS, however, is not forcing you to spend your distribution. For continued security, it makes sense to move a portion of any required distribution to other assets or savings. Now that it is allowed, it may also make sense to continue retirement plan contributions even when you are being forced to make withdrawals.

In a win for Empty Nesters, congress recently bumped up the age at which required minimum distributions must start. For those of us born after June 30, 1949, required minimum distributions do not start until age 72. Whenever you start taking money out, whether required or not, identify the tax status of the withdrawal. Basically, Roth IRA withdrawals will be tax free, most other withdrawals will be taxed. The fundamental strategy is to do the Roth withdrawals in those years you expect to have a higher tax bill and do traditional retirement plan withdrawals in lower tax years.


We hate to break it to you, but you will not live forever. The smart Empty Nester plans accordingly. With that sad thought in mind, retirement plans need to be passed to your heirs in a thoughtful way.

Most importantly, make sure you designate a beneficiary. If you do, the account passes outside of probate. Failure to name a beneficiary will burden the account with the additional expense of probate, freeze and may cause the account to be “frozen” until the Court appoints an estate administrator. Worse than that, without a beneficiary designation or a will, the account may go to a relative you would prefer to not inherit it. Finally, understand that in many situations, designating someone other than your spouse will require the spouse’s consent. Why? Often, states view retirement plans as community property assets. So you cannot give away something your spouse owns 1/2 of unless your spouse agrees.

Retirement plan beneficiary designations should usually favor the spouse.
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The rules governing how the heir to a retirement plan can treat those assets can be complicated. at a fundamental level though, a spouse usually has the right to treat the retirement plan as the spouse’s own while any other beneficiary must treat the retirement plan as an inherited asset. Under this structure, a spouse will usually be able to keep the money in the plan for a longer time than a child or other relative. That means there can be a tax incentive to favor a spouse with a retirement plan distribution even in blended family situations.


Lets return to the basic idea, which is that there is no need to panic. This discussion is general in nature and its main purpose is to motivate you to get the advice that best fits your needs. So here are some general takeaways to get you started.

  • If possible, make the maximum contributions to tax benefited accounts
  • Contributions may be available in higher amounts and for longer time periods than you realize
  • If you cannot make the maximum contribution and you have an retirement plan where the employer matches, it is often best to start there
  • Avoid early withdrawals at all costs
  • Try to withdraw from Roth IRAs when you expect a higher tax bill
  • When you start taking mandatory distributions, re-invest a portion of those distributions if possible
  • Designate a beneficiary on all your retirement plans
  • Develop a relationship with a trusted advisor
  • Make an appointment, probably by phone in the near future so you have time to make any necessary in-year adjustments.

Go ahead and feather your nest!

A competent, trusted financial adviser is key to any retirement plan.
Photo by Andrea Piacquadio from Pexels

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