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Is Retirement Close?—Here Are Some Things to Consider

Pension Payout Options

If you have a company pension plan, you will need to make some decisions about how you wish to receive your pension proceeds when you retire. Generally, you’ll be given the choice between receiving income for the rest of your life (single life option), receiving an income for the life of you and your spouse (joint and survivorship option), or receiving a lump sum distribution.

Each option presents its own potential advantages and disadvantages. For instance, a single life option will pay a higher income than a joint and survivorship option. However, if you take the single payout option, income will cease upon your death, whereas if you take the joint and survivorship option, payments continue for the life of both you and your spouse. With both payout options, you give up your pension balance in exchange for income.

If you would prefer to have full control over your pension assets during retirement, or are concerned that your pension income will not keep pace with the cost of living or your intended lifestyle, you might consider taking a lump sum distribution. You can receive the pension proceeds net of income taxes, or roll them over into an Individual Retirement Account (IRA) where retirement assets will continue to benefit from tax-deferral (mandatory minimum withdrawals must commence at age 70 ½). Either choice allows you to actively manage your own retirement assets.

Qualified Plan Proceeds

If you’re a participant in an employer-sponsored retirement plan (for example, a 401(k)), you’ll also have the option of receiving a lump sum withdrawal net of income taxes or rolling over the proceeds into an IRA. Once you retire, you’ll be required to actively manage your retirement assets. Therefore, it will be crucial to make prudent savings decisions that are consistent with your goals and objectives.

Shortfall Planning

As you approach retirement, you should continually reevaluate your planning to help ensure that you will meet your retirement funding goals. For most individuals, retirement plan assets and Social Security alone will not cover retirement income needs. Therefore, personal savings become equally important to your long-term success. Before you begin your personal retirement savings program, be sure you are fully maximizing contributions to your tax-advantaged, employer-sponsored plan.

There are a number of savings vehicles available to help you close the gap on a retirement funding shortfall. But, without a disciplined approach to saving, it will be difficult to achieve the goals you have set for yourself.

Before You Pass Go . . .

As you can see, there is a vast array of decisions you’ll have to make as you approach the homestretch to retirement. If you were forced to retire today, would your resources be adequate to provide a comfortable retirement? Are you prepared for the possibility of needing long-term care? What if you suffered an untimely death? Would your current retirement assets be enough to support your spouse or family? For these and many other reasons, it’s important to develop a well-rounded plan designed to meet your particular goals. It's never too early to start!