Retirement Distribution Planning

Step 1 - Determine Your Cost of Retirement

Achieving your retirement objectives will not happen automatically. The first step to consider as retirement approaches is to determine your cost of retirement. Your cost of retirement will be affected by many factors. Three of the most significant are:

Your monthly retirement living expenses

A common rule of thumb is somewhere between 70% and 100% of your annual earned income prior to retirement.

Your retirement age

This is the age at which you plan to stop working full time and start accessing your retirement portfolio assets.

Your life expectancy

This will define how many years your retirement costs will continue to be incurred.

Step 2 - Apply Your Income Sources

Once your cost of retirement assumptions have been defined, you can start to look at the income sources that may be available to you in retirement to help offset your retirement costs. Income sources may include among other things:

  • Social Security
  • Pensions
  • Immediate annuity payments

Income sources like Social Security, pension plans, and annuities can help offset your retirement expenses. Total inflows during retirement can also include planned distributions, investment income and other inflows such as insurance benefits, asset sales, and income from a business or trust.

Step 3 - Withdraw from Your Portfolio Assets

Once your available income sources have been applied to your cost of retirement, you can take withdrawals against your portfolio assets to make up the difference. Portfolio assets commonly include:

  • Brokerage accounts
  • Money Market accounts
  • 401(k)s, 403(b)s, and other employer-sponsored retirement accounts
  • IRAs
  • Annuities

Withdrawals from portfolio assets are a critical component of all retirement plans. The size and frequency of withdrawals will go a long way to determining if your portfolio assets will last for your lifetime. Withdrawals can be made from taxable or tax deferred accounts, each providing different tax consequences. You should always be mindful of your total withdrawals to make sure you are not liquidating your assets too quickly.

Step 4 - If Necessary, Consider Changes

If you determine that you are not on track to achieve your retirement objectives, you will need to consider making some changes. These changes may include:

  • Saving more before you retire
  • Redefining your retirement age
  • Considering part time employment during retirement
  • Spending less during retirement
  • Combination of above