Imagine you are retiring next week. You’re excited about traveling, volunteering, or simply kicking back and reading a good book.
But, you likely also have questions. What pension option should you select? How will you start taking money from your Individual Retirement Accounts? When will you start taking your Social Security benefits?
These are common – and important – questions to answer, and every person close to retirement needs to do some retirement distribution planning. Quite simply, they need a roadmap to retirement.
Gathering information is your first step. If you are fortunate enough to have a pension plan with your current employer or any former employers, you need to find out what your payment options are. The payment options may include a lump sum – an option which pays you income only for your life and does not continue if you die before your spouse – and one or more joint and survivor options that pay you income during your life and continue to pay income to your spouse if you die first. You should contact a reputable financial planning professional if you are unsure about which option you should take after considering your retirement income needs and other financial resources.
Regardless of how far from retirement you are, you should also review your most recent Social Security statement to ensure that your earnings record is correct. If you are close to retiring and nearing age 62, you will want to learn more about the impact of taking your benefit at age 62 or waiting to take your benefit. Age 62 is generally the earliest age at which you can take your Social Security benefit.
Your benefit will increase by a certain percentage for each month you delay taking your benefit. If you are going to work part-time in retirement, your benefit may be decreased if you earn over a certain amount and have not yet reached your Social Security “full retirement age.”
Finally, you will need to plan how you will take distributions from your other resources, such as your 401(k) account, traditional IRAs, Roth IRAs and non-retirement accounts, such as bank accounts and mutual funds. You may want to consider doing a direct rollover of your 401(k) or other employer-sponsored plan to an IRA to make distribution planning easier. You may even want to establish more than one IRA account and allow one IRA to continue growing while taking distributions from another account to meet your retirement spending needs. You will need to start taking distributions from your traditional IRAs when you become 70 1/2 years old.
The prospect of retiring soon is exciting, but you will need a roadmap to retirement – a distribution plan – to ensure that you stay financially secure. Be sure to contact a financial planning professional if you need assistance with making important distribution planning choices.