Retirement Distribution Planning

August 1, 2017

My financial advisor gave me advice once in a phrasing I’ve never forgotten. “Rule Number One of retirement is to never run out of money,” she said. “Rule Number Two is to always remember Rule Number One.” Sounds simple, right? The challenge is how to structure a retirement plan that allows for consistent and sustained cash flow, while weathering the inevitable curve balls that life throws our way – health-related, financial, or otherwise. According to money experts, a critical piece of that effort lies in distributions – both joint and individual – and in carefully planning how and when they’re dispersed.
Distribution planning is complex issue that ideally should be navigated in consultation with a retirement advisor. First, some facts to consider:

  • Most of us will need 60-80% of our current gross household income to maintain our current standard of living during retirement.
  • Social Security paid out an average of $1,342 monthly in 2015 – that’s only about $16,000 per year.
  • The average retirement lasts 18 years, with the suggested target age being 95 years old.

Before you sit down with someone, take a minute to inventory your likely sources of retirement income. These typically include:

  • IRAs and Roth IRAs
  • 401(k)s, 403(b)s, and 457s
  • Pensions
  • Social Security
  • Ownership or stake in a business
  • Real Estate
  • Taxable investments
  • Other savings

In terms of how these funds are distributed, your financial planner will begin with a detailed analysis of your net worth, essential expenses (both current and anticipated), and spending habits, to get a handle on the lifestyle you’re hoping to maintain. S/he’ll likely then dig into the following:

  • What funds should be distributed, and when, to create a consistent and sustainable cash flow. These determinations are based on multiple factors, like the minimum withdrawal amounts of funds like IRAs, which require them after age 70 and ½.
  • Your investment strategies, both short- and long-term, and how they can help achieve the best distribution flow.
  • Tax implications and regulations tied to all of the above, which are, as you would expect, incredibly nuanced and complicated.

Once you’ve come up with a plan, it’s a good idea to revisit it annually, to allow for any changes in tax code, for example, or any life events that might force a recalibration in strategy.
Want more information? Some helpful sites for retirement planning include Bankrate, Investor Junkie, and the AARP.