Understanding the transition

If you’re like many American workers, you’ve spent years or even decades contribution to your employer’s 401(k) plan or even your own IRA. These qualified retirement accounts are effective accumulation vehicles because of their tax advantages, primarily tax-deferred growth.

However, after you retire, these types of accounts may become distribution vehicles rather than saving vehicles. While you will likely have income from Social Security and possibly a pension or other sources, you may also need distributions from your retirement accounts to support your lifestyle. Your decisions and strategy for those distributions could impact whether your assets last through your lifetime.

The transition from accumulation to distribution isn’t as simple taking withdrawals from your accounts. Take too much income and your assets may not last. Take too little and you may not be able to live the type of retirement you desire. Other factors, like investment strategy and taxes, can also impact the success of your distribution plan.

Below are a few items to consider as you develop your strategy for retirement distributions. If you’re nearing retirement and haven’t considered this issue, now may be the time do so.

Estimate your income need

At the core of every retirement funding strategy is a decision about exactly how much money to withdraw. As mentioned, the wrong withdrawal amount could negatively impact your lifestyle or the sustainability of your retirement assets.

One way to estimate your income need is to build a projected retirement budget. List out your expected retirement expenses and estimate them to the best of your ability. Also itemize and estimate your guaranteed income sources like Social Security and pensions.

If a gap exists between your expenses and your guaranteed income, you will likely need to fill that gap with distributions from your savings. Use this as a good starting point for your estimate. Also consider that you will likely need to increase your distributions every year to keep up with inflation. If your estimated distribution seems high, you may need to adjust your planned spending in retirement.

Assess your risk tolerance

It’s common for people to become more sensitive to risk and volatility as they transition from accumulation to distribution. When you’re accumulating assets, you’re contributing to the account regularly and you don’t have an immediate need to access the funds. You may not notice short-term volatility or downside movement.

However, when you’re depending on the funds to live, you may have less tolerance for such fluctuations in the market. Review your investment strategy and consider how you may need to adjust your allocation to minimize your risk. You will likely need growth opportunities as well, so it’s important to find a balance between risk and return.

Look for guaranteed income strategies

If you’re concerned that your assets may not last through your lifetime, you may want to look at ways to convert some of your savings into guaranteed income. 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. Annuities, for example, offer a variety of ways to generate income that is guaranteed for life, no matter how long you live or how your investments perform. That kind of strategy could bring stability to your retirement income.

Ready to start the transition from accumulation to distribution? Let’s talk about it. Contact us today at Milestone Coach Advisory. We can help you analyze your needs and goals and develop a plan. Let’s connect today and start the conversation.


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