The Best Strategies for Retirement Distribution

Daniel Penzing
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Tax Treatment

Retirement distributions are taxable as ordinary income for federal income tax purposes. In addition, if a distribution is received as a non-employee, it is also generally taxable for Social Security and Medicare taxes.

Do an Inventory

Before you start strategizing your retirement distribution, you’ll want to do an inventory of your assets. The process of creating an inventory can be pretty simple if you’ve been good at tracking your financial assets over the years or, if like most people, you haven’t, you’ve found yourself in this situation before and your financial life is at least somewhat organized.

Whether your assets are fairly simple to track or not, the process won’t be difficult and you should find it rewarding in addition to illuminating. To create your inventory, you’ll want to go through all of the accounts you have (i.e. retirement accounts, savings accounts, checking accounts, etc.) and list out all of the investments and how much you have in each. You’ll also want to detail any loans you have, as well as your liabilities (i.e. debt).

When you’re listing your investments, you’ll also want to note which accounts you own the investments in and how much you own depending on your current net worth. Finally, you’ll want to detail how liquid each investment is.

Determine Your Income Needs

When considering retirement distribution, keep in mind that your income may drop significantly when you retire and that you should not use retirement assets to cover expenses that are normally paid for out of your salary.

Take a close look at your living expenses and determine how close your savings is to covering these expenses. If it’s not very close, you might want to look at exploring other income generating strategies before you start tapping your retirement assets.

Estimate your life expectancy and hours that you can work. You may want to consider working part time or consulting to supplement your cash flow.

Read about Social Security benefits, State retirement plans, and pension plans. Make sure that you are not missing out on any valuable retirement payout.

Review your budget and think about ways to cut expenses. For the majority of people, they might need to begin cutting back on the luxuries of life.

Planning a Withdrawal Strategy

Retirement is often thought of in terms of a number. How much do you need to retire? The answer depends on the lifestyle that you want to lead once you stop working.

Some people plan their retirement with little concern for distribution and simply plan on drawing from the account until it is empty. Although drawing down a savings account is an option and may provide enough income, it will mean that you will probably have a very modest retirement unless your investments have grown dramatically.

For some people, this may be a viable strategy. However, with many of us living longer than past generations, relying on your savings account may not be a viable option. To get a better picture of how to live your retirement, let’s look at a few different distribution strategies.

The Types of Retirement Distributions

There are a few different distribution strategies that you can use. The choices that you make when it comes to distributions will often be a personal one that is based on your preferences for retirement. Look at some of the more common retirement distributions to get an idea of what these strategies can provide.

Relook at Things Each Year

When you first retire, you will probably have many questions about your investments, and this is to be expected. Not all of the information about how to invest for retirement will be available when you first decide to save, and you may have to seek out additional guidance.

It is also a good idea to consult with an advisor about how to invest for retirement. Even if you have a substantial amount of money in your retirement account, an advisor can open up additional options, such as different mutual funds that could be even more beneficial to you.

Your retirement priority number one is to live off of the income that your investments generate, and the longer you delay the distribution, the better off your investments will be. In fact, you should delay distribution as long as possible. You can choose to start receiving distributions at the beginning of each calendar year, or you can choose to postpone things until you reach age 70.5.

If you’re receiving a pension, you may be able to take a lump-sum pension distribution, but this is generally not advisable if you have other sources of income.

The Bottom Line

It is an unfortunate fact of life that, as time passes, you get older and older. One of the biggest problems is the fact that your financial freedom and security is affected by you age, your job history, and the amount of money you have saved for retirement. If you are reading this book, it is because you want to know how to maximize your retirement savings.

For too long, retirees have put too much emphasis on just how much money they would need by the time they retire. The amount of money that is sufficient for your retirement year depends on your lifestyle and how exactly your retirement would go. So, the amount of money you would need to spend daily is not the only thing you need to consider when making your retirement calculations.

Luckily, US government’s Center for Retirement Research has conducted a study regarding the most successful strategies for retirees. This study gives a great insight into the strategies that you can use to retire without the financial burden.

Four years ago, the researchers gathered a huge pool of data regarding the retirees. They inquired about things like their financial status, lifestyles, and opinions. They then concluded that, of all the people who were interested in participating in the survey, almost half of them were below average. In fact, they were so much below average that the researchers did not even think they were worth the effort to interview and analyze.