Most of us spend our time and attention on accumulating our retirement nest egg during our working careers with little or no thought on how to use retirement savings as an income stream once in retirement.
There are several options available, which one is right for you? You could choose to leave your money in the plan, take a lump sum payout or a partial withdrawal, buy an annuity or roll the money over to an IRA.
Leave in Plan –
Pro, this likely is the easiest option as it doesn’t require any additional steps, money in a 401(k) is generally protected from creditors & these amounts continue to grow tax deferred.
Con, you’re limited to the investment options within the plan and some funds have high fees.
Take a Lump Sum –
Pro, if your over age 55 and retired or over 59 ½ regardless of your employment status you can take a lump sum distribution without a 10% early withdrawal penalty.
Con, you lose out on the protection from creditors and could incur severe tax consequences as these amounts withdrawn are subject to Fed. & State taxes.
Buy an Annuity –
Pro, annuities provide a steady stream of income for the remainder of your life in exchange for your retirement nest egg. There are several options when selecting annuities, one such option is a spousal benefit option which pays your spouse a guaranteed benefit should you die.
Con, a major drawback to annuities is inflation. Payments received from the annuity will be worth less and less every year due to inflation. For example, a $2,000/month annuity payment today may only have purchasing power of roughly $1,300/month, 20 years from now, assuming a modest 2% inflation rate. Generally, annuities cannot be changed or modified once you have made the election to annuitize your retirement nest egg.
Rollover to an IRA –
Pro, similar to leaving the monies in the plan, IRA accounts continue to grow on a tax deferred basis but provide you with increased flexibility. You can decide the appropriate risk tolerance for your portfolio investing in any stocks, bonds or mutual funds you would like. You have complete control over how to use retirement savings, deciding how much and how often withdrawals are made from this IRA account.
Con, IRAs require a little more work in setting the account up and are subject to market rate risks.
Whether your savings are in 401(k), 403(b), 457 or IRA Accounts or a combination of retirement accounts you will need to build a sound retirement plan. Sound confusing? Too many options? Don’t know where to start? This is where JMR Financial Group can help!
JMR Financial Group can design a retirement income stream that meets your retirement needs and goals.
- 1st, we will help determine what it will cost to run your household on a monthly basis once in retirement.
- 2nd, we will help determine what amount of these costs will be covered by social security, continued wages and any other sources of guaranteed income.
If your day-to-day living expenses exceed the amount you receive from Social Security and any pensions, you may want to consider establishing an IRA that will generate a monthly income stream. By rolling over your retirement plan accounts (401(k), 403(b), 457) to an IRA you can invest in various income producing investments like Preferred Stocks, Limited Partnership, Real Estate Investment Trusts and Business Development Corporations that generate dividends or income.
These investments generate a stream of income on a regular basis which is then used by you the IRA account holder as you withdraw these amounts out on a monthly or periodic basis to meet your current day-today living expenses. This method helps preserve your principal or original investment amount for as long as possible in an attempt to have your retirement account out live you.
JMR Financial Group can also help advise you on taking Social Security benefits:
- Early
- At full retirement age, or
- Delayed
Delayed Social Security benefits increase roughly 7% to 8% per year between the ages of 62 & 70.
JMR is also able to advise you on the tax ramifications of the various investment options you have to choose from. Being able to offer tax planning and preparation services to our investment clients truly sets our firm apart from our competition.
At some point, you will need to come up with a withdrawal plan that will allow you to get the income you need while not running too big of a risk of spending down your assets too soon.
You want to develop not just an income stream but a comprehensive plan to ensure you’ll have the income needed for what will likely be a long post career life and you definitely want to do that before you pull the trigger on retirement.
Contact one of our Financial Advisors today to begin planning your world’s longest coffee break. We proudly serve Duluth, MN, Superior, WI, and the entire Twin Ports.
