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6 steps for creating your retirement income plan

Determining how to access your retirement savings and create an income stream that will last the rest of your life can be just as important. A good way to get started is by developing a retirement income plan. Think of it as a personalized strategy that involves investing your savings in ways that are designed to generate the income you need to live. Sitting down and doing the math to figure out how much your savings will provide in retirement is not an activity that most of us look forward to. But, it's something that needs to be done sooner rather than later. And your personal financial professional can help. At the end of such an exercise, you should be able to:

  • Determine how much money you may need in retirement to cover your expenses
  • Identify income sources and retirement assets available to help fund your retirement
  • Understand how retirement savings can generate cash flow to help cover expenses
  • Determine if your withdrawal rate from savings is likely sustainable throughout retirement

To begin building your plan, here are six steps to walk through with your financial professional.

Step 1: Defining Your Goals

The first thing your financial professional will do is help you to evaluate your retirement goals. He or she will ask you when you would like to retire and about your general retirement plans.

Step 2: Gathering Information

Your financial professional will need to gather basic information, such as your date of birth, your expected retirement year, your current retirement savings and any other benefits you expect to receive in retirement (such as Social Security or a pension plan).

Step 3: Analysis

Next, your financial professional will analyze your current situation. That analysis includes a review of your overall asset allocation, your expected income during retirement and an estimate of how long your savings may last.

Step 4: Evaluating Your Options and Examining Your Asset Allocation

If the analysis reveals that you aren't quite able to achieve your income goals, your financial professional can help you evaluate options. For instance, you can review the potential impact of pulling back on expenses, boosting your savings level, adjusting your investment allocations to meet your personal needs and tolerance for risk or working a little longer.

Step 5: Making Adjustments

If needed, your financial professional can help educate you about how to make any financial adjustments. He or she can help you increase your retirement plan contributions, roll over assets from a previous employer's retirement plan or open a new individual retirement account (IRA).

Step 6: Choosing Income Solutions

After evaluating your current situation and retirement goals, your financial professional will suggest retirement income solutions that make sense for you. Your plan could include keeping savings in the retirement plan, an IRA Rollover, or lump sum distribution. Investing options may include: income annuities, fixed deferred annuities, mutual funds and bank products (CDs and savings accounts). Many people combine investment vehicles to leverage the features of each. For example, an income annuity provides assurance, predictability and a guaranteed income stream for life.[1] Mutual funds offer control over how savings are invested and the flexibility to access funds if needed. By splitting retirement savings between the two, you can enjoy the features of each.

Consider your options

As you consider the savings you have in your employer's retirement plan, you should understand the advantages and disadvantages of the various options or combination of options available. Some things to keep in mind when evaluating your choices are the differences in investment options, fees and expenses, and tax and legal implications (creditor protections and required minimum distributions). An individual retirement account (IRA), like a qualified employer plan, will have associated fees and expenses, which will be different for each option available to you. You should consult with a tax professional about the tax implications of each option.[2]

Find out how a financial professional or advisor can help.

All annuity product guarantees are subject to the claims-paying ability of the issuing insurer.
A lump sum distribution that is not rolled over into another plan or an IRA will be subject to ordinary income taxes, including 20 percent withheld for federal taxes. Some states may require state income tax withholding. A lump sum distribution is also subject to a 10 percent federal penalty unless you are age 59½ or age 55 or more when you separated from service. Not all employer plans accept rollovers. See Government Accountability Office 13-30, "Labor and IRS Could Improve the Rollover Process for Participants" at 8 (March 2013) ("GAO Report").


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