Cents and Sensibility


Saturday, June 23, 2001

Retirement savings
can turn into income

WHAT can you do in retirement? Just about anything you want. But make sure you've got the income you need to live the life you choose.

Today's retirees are opening their own businesses, consulting, traveling, pursuing hobbies and even going back to school. And with advances in health care and an increased awareness of the importance of healthy lifestyles, many of us can expect to live two, or even three, decades in retirement.

To support your chosen lifestyle for all those years, you'll need to look at how you can turn your retirement savings into retirement income. Let's consider some of the options you have available.

First, if you open a new business or do consulting, you will receive earned income. How much you earn depends on what you do and how much you plan to work. But even many "working retirees" find that they still have to draw on their retirement plans, such as their 401(k) or IRA, to supplement their income. So, let's look at ways to get at these funds.

When you leave your job or retire, you can get instant access to your 401(k). But if you take this money in a lump sum, you'll face a big tax hit. It may be a better idea to roll your 401(k) money over to an IRA. You won't have to pay immediate taxes, and you can avoid possible IRS penalties. You'll also gain more investment options and more control over the size of your eventual withdrawals. This type of 401(k) rollover gives you flexibility.

What if you don't need your 401(k) or traditional IRA funds right away? You can delay taking withdrawals until age 7012, when the government requires you to start taking minimum distributions. (This rule does not apply to Roth IRAs.) Of course, the longer you wait before you start tapping into your 401(k) or traditional IRA, the larger your account may grow and your heirs could end up with estate-tax consequences.

So look at all your funding sources: Social Security, 401(k), pensions, IRAs and personal investments. Then, see how to get all these sources to work together to provide you with the "Goldilocks" level of retirement income -- not too much, not too little, but just right.

Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at:

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