Ah, the blessings of retirement – no early morning alarm, no troublesome commute, and . . . no paycheck. You’re on your own for assuring a steady income flows into your checking account every month – hopefully one that will support your accustomed life style.
In his study of this topic, Steve Vernon of the Stanford Center on Longevity explored how well retirees are doing handling their own financial security. Unfortunately, he discovered that most lacked skills to convert their years of savings into a sustainable source of retirement income.
If you’ve been saving into a qualified retirement account such as a 401(k) or 403(b), good for you, but how do you get your money back out once you’ve retired? The rules for accessing your money are determined by your employer’s plan, so it’s best to meet with your company’s human resources department and ask questions well before your last scheduled day of work.
If your company offers regularly scheduled payouts from your retirement savings plan, ask about transaction fees, especially for any withdraw that isn’t scheduled for on automatic payout. If your company doesn’t offer a regular withdrawal service, you may want to roll your 401(k) out of the company and into an IRA of your own, but keep in mind that management fees may be a lot lower for your company than they will be for an individually managed account.
How much should you ask to receive every month? Are you worried you’ll outlive your savings? You must balance your withdrawal rate while factoring in how much you need to leave alone so your nest egg can continue to grow that income stream you need well into retirement.
And if you’re the type who is tempted to take your retirement savings in one lump payment and spurge on a dream vacation or cottage by the lake, stop and think again. First of all you’ll pay hefty taxes on amounts you convert out of a qualified retirement account. Secondly, you could deplete your savings to the point that you may not be able to generate a livable income – you’ll loss the opportunity to invest. Instead, consider investing a portion of your retirement account into a fixed index annuity that will guarantee a set income, maintain your principle, and likely grow with the stock market. You’ll have to pay significant surrender fees if you take money out prior to maturity of your agreement with the insurance company. This will make it more difficult for you to succumb to impulse spending. Other more conservative investments, such as high grade bonds should be considered.
Don’t be intimated by your retirement nest egg! It’s your money and you’ve worked hard for years to feather your nest. Various tools exist to generate a regular steam of income in retirement, but many people are not familiar with them and lack confidence in their ability to make good choices. Do your research and meet with a trusted financial advisor so you can move into retirement with confidence.