You’ve been dutifully contributing to your 401(k) plan for years, possibly even decades. Now retirement is right around the corner, and all of that disciplined saving is about to pay off. If you’re like many retirees, your 401(k) plan may be your single largest retirement asset.
As you’ve saved and accumulated 401(k) assets, you’ve probably asked yourself a number of questions. How much should I contribute? What allocation is best for me? Should I roll my old 401(k) plans into an IRA?
You may not have considered what happens to your 401(k) after you retire. Often, retirement can trigger a whole new list of questions. How you answer those questions can impact your 401(k) and its ability to provide a stable stream of income in retirement.
Have you made a plan for what you will do with your 401(k) plan after retirement? Do you have a strategy for using that plan to generate income? Below are a few important questions to ask yourself during this planning process. If you don’t have answers for these questions, now may be the time to revisit your strategy.
What allocation is right for you?
For many retirees, this is a pressing concern involving all investments, including the 401(k) plan. During your career, you likely were in a growth and accumulation mindset. You may not have felt stress about downturn volatility, because you had years until retirement and also because you were contributing money to the plan.
In retirement, the opposite is true. Time is no longer on your side. Instead of adding money regularly, you may be pulling distributions on a consistent basis. As a result, you may be more sensitive to loss.
There’s no right allocation for everyone. It depends on your unique needs, objectives and tolerance for risk. However, be careful not to be too conservative. By eliminating risk, you may also eliminate growth potential, and you will need growth to fund distributions and combat inflation. A financial professional can help you find the right allocation for your retirement.
Should you keep the funds in your 401(k) plan?
Another consideration is whether you should keep your funds in the 401(k) plan. In many plans, you are allowed to keep the funds in the plan as long as you like, so long as the balance exceeds a certain level. If you’re used to the plan’s online portal and service functions, you may feel comfortable doing just that.
However, you may also benefit from rolling the funds into an individual retirement account (IRA). The IRA may offer more investment options than your plan. Also, if you have multiple 401(k) plans, you could consolidate them into one IRA, simplifying administration and management.
How much should you take in distributions?
This is another important question to answer, as it directly impacts your ability to live a stable and enjoyable retirement. It’s possible that when you retire, you may have more money available than you’ve ever had in your life. It can be tempting to withdraw money to pursue your dreams.
However, if you withdraw too much money in the early years, you may not have enough money to meet your needs in your final years. That could be especially challenging if you require long-term care or other costly medical treatment.
It’s helpful to develop a budget and income plan so you can determine exactly how much you need. With that information, you can take a distribution that is sizable enough to support your lifestyle, but also conservative enough to protect your savings and give your balance an opportunity to grow. Again, a financial professional can help you answer this question.
How can you stabilize and guarantee* the income stream?
Finally, you may want to explore options to turn your distributions into a reliable, guaranteed* stream of income. There are various ways to do this after you roll your funds into an IRA. For example, there are several types of annuities that allow you to generate a guaranteed* lifetime stream of income from your retirement savings.
These strategies can be complicated, so you may find it helpful to consult with a financial professional for more information. Here at Carstens Financial Group in Arnolds Park, Iowa, we can help you analyze your needs and goals and develop a strategy for your 401(k). 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.
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