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There are many factors to consider when deciding the best way to take your retirement distributions.
To help you plan and avoid some costly mistakes, consider the following questions:
Your employer should be able to provide you with estimated payout projections of the various annuity options.
After considering all of the factors when making your distribution choice, you should then determine the most effective way of taking your distribution from your retirement plans, giving attention to minimizing income taxes and excise taxes. A choice on the optimal form of retirement benefits to be received can be objectively determined based on the after-tax monthly retirement income that each option will provide, given your expected marginal income tax rate in retirement, the rate of return that can be earned on your retirement funds, the expected benefit payout period, and the balance in the qualified plan account at retirement.
But these mechanical computations must be considered with non-tax issues, such as your ability to manage large sums of cash, the possibility of you outliving the assets, and what your thoughts are on your life expectancy. Your overriding consideration is to remember that this money must last you a lifetime - and it may be a much longer lifetime than you expect. An annuity in most cases pays a benefit for your lifetime (so you can't outlive your capital). However, if you die prior to your life expectancy, you and your beneficiary, if applicable, may not collect the full value of your accrued benefit. With a lump-sum distribution, you manage the money, and may outperform the annuity. You can also continue to defer taxes by rolling the money into a traditional IRA. You may also be able to take advantage of tax-free growth by converting to a Roth IRA. However, if you don't properly manage your money, it may not last as long as you need it to.
Your financial professional can help you clarify how to use the different payout calculations in your retirement planning and discuss with you the considerations involved in selecting a distribution option.
Securities and Investment Advisory Services are offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Insurance products are offered through LPL Financial or its licensed affiliates. Heartland Planning Associates is a trade name of Heartland Bank. Heartland Bank and Heartland Planning Associates are not a registered broker/dealers and are not affiliated with LPL Financial. The investment products sold through LPL Financial are not insured Heartland Bank deposits and are not FDIC insured. These products are not obligations of Heartland Bank and are not endorsed, recommended or guaranteed by Heartland Bank or any other government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. The LPL Financial representatives associated with this website may discuss and/or transact securities business only with residents of the following state: Ohio. Check the background of investment professionals associated with this site on FINRA's BrokerCheck.
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