An individual retirement account (IRA) is designed to help fund your retirement. However, an IRA carries no guarantees. Unlike Social Security or investments such as annuities, which promise annual payments until you die, you'll only be able to tap your IRA until your balance drops to zero. If you deplete your IRA at age 83, you won't have any additional money coming out of that account, no matter how long you live.
Process & Limits
While employer-based retirement plans such as 401(k) plans may limit your access to your funds, an IRA belongs to you alone. At any time, you can take out as much money as you want. If you're under age 59 1/2, you'll face a 10 percent early withdrawal penalty, but by age 83, that penalty no longer applies. You can set up regular weekly, monthly or annual withdrawals, or you can simply take money out as the mood strikes you. To ensure that the IRS is notified about your withdrawals, you'll have to complete an IRA distribution form provided by your financial services firm when you take money out.
Additional Funding Sources
An IRA isn't an investment, it's merely an investment account. If you are a successful investor, you may be able to accumulate a sizable balance in your IRA by the time you retire, which you can use to cover your retirement costs. However, if you deplete your IRA by age 83, you'll have to rely on outside income to continue funding your retirement. For this reason, you might want to switch to a more conservative investment mix as you approach retirement age. One bad year in the stock market could wipe out years of retirement savings, and if you're already at an advanced age you won't have time to recover.
Your IRA balance might run out long before you anticipate if you don't factor in taxes. When you take an IRA distribution, the IRS considers it ordinary income, the same as your wages or salary. You'll owe income tax based on your current tax bracket. If you use the full value of your IRA to calculate your retirement payout schedule, you're likely to face a shortfall. The IRA that you planned on lasting to age 100 might result in an empty account by age 83 if you don't include tax calculations.
Even if you don't rely on your IRA to fund your retirement, you might end up with a smaller IRA than you figured at age 83 due to required distributions. The IRS forces you to take money out of your IRA after you turn age 70 1/2, even if you don't want it. The minimum amount you have to withdraw is based on your account value and life expectancy, as calculated by the IRS. The older you get, the greater percentage of your account you'll have to withdraw. As of 2013, at age 83 you'll have to take out about 6 percent of your account. While required distributions won't fully deplete your account, they can act as a drag on the growth of your IRA.
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