Retirement Income That Measures Up

Franz Koch, Merrill Lynch

Merrill Lynch Wealth Management suggests strategies to help you meet your retirement needs.

Pension income, investments, a 401(k) account: All those potential resources can provide you with a solid foundation for retirement. But how do you develop a strategy for drawing them down in a way that will see you through retirement?

“Your approach will depend on your age and lifestyle, as well as all of your anticipated—and unanticipated—expenses,” says Lorna Sabbia, head of Retirement & Personal Wealth Solutions at Bank of America Merrill Lynch. “A conversation with your financial advisor can help clarify the strategy that might work best in your situation.” Here, Sabbia offers some points that anyone entering retirement should think about.

“One of the first things you will want to do is figure out which of your accounts might have required minimum distributions (RMD),” she says. Because there can be penalties for missing a deadline, keeping track of all of your RMD deadlines can help you get the most efficient use of your various sources of income. Some people find it convenient to roll multiple 401(k) accounts into one IRA so that they only have to worry about one RMD deadline.

You have choices for what to do with employer-sponsored retirement plan accounts such as 401(k)s. Depending on your financial circumstances, needs and goals, you may choose to rollover to an IRA or convert to a Roth IRA, rollover an employer- sponsored plan from a prior employer to an employer-sponsored plan at your new employer, take a distribution or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.

Taxes are another important factor to consider as you create your drawdown strategy. Withdrawals from taxable investment accounts are taxed at capital gains rates, while withdrawals from an IRA or a 401(k) may be taxed at higher rates—as regular income. “If you exhaust your taxable accounts too soon, and you suddenly find yourself facing unexpected expenses, you will be forced to take the money out of an account that could cost you more in taxes,” Sabbia warns.

Remember to stay flexible. “No matter what plans you have at the outset, life keeps changing, and so will your needs,” she adds. You may find out that you do not want to travel as much as you thought you did. Or you might decide to help out a family member financially. Your income sources could vary too. For instance, you could decide that you want to go back to work part-time to bring in extra money.

Most retirees will find that their answer today will almost certainly be different in five years. “I suggest taking the time right now to think through a drawdown strategy that suits your individual needs,” says Sabbia. “And, as your life and the markets change, look for ways to correct your course as needed.”

 

For more information, contact Merrill Lynch, Franz Koch in the Boca Raton office at 561-393-4583 or [email protected].

 

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