Your Retirement Savings Plans in Retirement

Your IRAs, 401(k)s, and other retirement accounts may be your single largest source of income once you stop working full-time. Review your statements to see how much you have and whether consolidating accounts makes sense. Understand the tax implications to help determine when to begin taking withdrawals from your retirement accounts.

By Jeanne Lee

Now that retirement is within sight, it’s time to take stock of all that money you’ve been squirreling away in 401(k)s, IRAs, and other accounts. You’ll want to figure out when you’ll need the cash, how much you have so far, whether you should consolidate the plans, the tax implications of withdrawals, and when to withdraw your cash to avoid running out of money in retirement.
Drill down to an exact retirement date, knowing the trade-offs of working one year less or more, and how that affects your retirement spending.
Pick a date
Base your plans on a set retirement date, and re-evaluate it once a year. Your goal over time is to “drill down to an exact retirement date, knowing the trade-offs of working one year less or more, and how that affects your retirement spending,” says Stephen Hudson, Vice President of Wells Fargo Institutional Retirement & Trust.
Review your statements
Once you’ve decided when you’ll retire, gather all your most recent statements for your assorted retirement accounts to see how much you have and where the money is invested.

If you have multiple, similar accounts — such as three 401(k)s from various employers — ask your financial advisor about consolidating them to make them easier to manage.
Please keep in mind that rolling over assets to an IRA is just one of multiple options for your retirement plan. Each of the following options are different and may have distinct has advantages and disadvantages.
  1. Roll assets to an IRA
  2. Leave assets in your former employer’s plan
  3. Move assets to your new/existing employer’s plan
  4. Cash out or take a lump sum distribution

When considering rolling over assets from an employer plan to an IRA, factors that should be considered and compared between the employer plan and the IRA include fees and expenses, services offered, investment options, when penalty free withdrawals are available, treatment of employer stock, when required minimum distribution begin and protection of assets from creditors, legal judgments, and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with employer-sponsored retirement plans. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.
Understand the tax implications
Different types of retirement savings plans are taxed differently in retirement. You’ll owe taxes at your income tax rate on money withdrawn from traditional tax-deferred IRAs and 401(k) plans. But withdrawals from Roth IRAs should be tax-free.*

Keep in mind that your income will probably be lower in retirement than before retirement, so your tax rate for taxable withdrawals will likely be lower, too.
Decide when and how to withdraw your money
You’ll need to choose your preferred method of receiving your retirement plan payments.

You could simply take out a fixed dollar amount each month, quarter, or year. The drawback to this method is that you may need to increase the amount over time due to inflation.

Alternatively, you could arrange to have a set percentage of your retirement plan assets paid out regularly — for example, 4% per year.

If you won’t need to live on the money you’ve put into these plans, you might arrange to receive regular payments only from their interest and dividends. This method could be appropriate if preserving an inheritance for your heirs is a priority.

Key Points:

  • Base your plans on a set retirement date and re-evaluate it once a year.
  • Pull together all your retirement savings plan statements and ask your financial advisor about consolidating accounts to make your retirement income more manageable.
  • Decide when and how you’ll want to withdraw cash from your retirement plans.
Jeanne Lee is a business journalist whose work has appeared in Financial Planning, Fortune, Money, and on CBS

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