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Is Your 401(k) Set Up for Retirement Distributions?

Filed under: Retirement

Is your 401(k) plan one of your largest retirement assets? You’re not alone. The employer-sponsored 401(k) represents one of the most effective retirement savings vehicles for many American workers.

The 401(k) offers tax-deferred growth as long as your funds stay in the account. Without the burden of paying taxes on growth on an annual basis, your 401(k) funds may be able to compound at a faster rate.

Many employers also offer matching contributions. If your employer offers a generous match, you may be able to take advantage of that match to substantially increase your savings rate every year. Additionally, you probably make your contributions automatically from your paycheck, making it easy to save.

For these reasons and others, the 401(k) plan is an effective accumulation vehicle in retirement. As you approach retirement, though, your mindset may be shifting from accumulation to distribution. You will likely need to take withdrawals from your retirement savings to fund your lifestyle in retirement.

Distribution presents a number of challenges that don’t exist in the accumulation phase. You could be more sensitive to risk and volatility, as the combination of withdrawals and market downturns could cause a decline in your accounts. You also may need to plan your withdrawals carefully to ensure your funds last through your lifetime.

If retirement is approaching quickly and you haven’t considered a distribution strategy, now may be the time to do so. Below are a few things to consider as you start your planning:


Distribution Amount

At the heart of any retirement distribution strategy is the question of just how much money to take in withdrawals. It’s a tricky challenge. Take too much income, and you could deplete your funds early in retirement. Take too little, and you may not enjoy the type of retirement you’d like for yourself.

One of the best ways to answer this question is with a detailed retirement budget that includes estimated spending as well as income from sources like Social Security and pensions. If your expenses exceed your income, you’ll need to fill that gap with savings distributions. Use this number as a starting point in your planning. If the distribution amount seems high, you may need to rethink your spending.


Risk Tolerance

It’s natural to become more sensitive to risk and volatility as you transition into retirement. When you’re saving money, you may not notice downward movement as much because you’re adding money to your plan via contributions, and because you don’t have an immediate need for the money.

In retirement, though, a downturn could impact your ability to generate income. At the same time, you still need some growth to sustain your funds through a retirement that could last multiple decades. Reassess your options and find an allocation that’s right for you. You may find that you have more options available by rolling your 401(k) into an IRA after you retire.


Guaranteed* Income

For many retirees, the ultimate fear is running out of money before they pass away. It’s an understandable concern. While Social Security and pension benefits may be guaranteed through your lifetime, your savings withdrawals likely are not.

However, you can use tools such as annuities to create a stream of income that’s guaranteed for life no matter how long you live. Annuities accomplish this goal in a variety of ways. While annuities usually aren’t available inside 401(k) plans, they often are available inside IRAs. Consider ways in which you can use a portion of your savings to generate a guaranteed* income stream.

Ready to create your retirement distribution plan? Let’s talk about it. Contact us at Ambrose Financial & Insurance Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.


*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.


This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

16295 – 2016/12/19