After retirement, you need to decide whether you should roll over your 401k to an individual retirement account. Once you are no longer working at a company, it’s often a good idea to move your money to a retirement account that is not tied to your former employer While many people do choose to conduct their retirement rollovers on their own, you should at least consider working with a qualified financial advisor. Their expertise could help you navigate these important decisions. Retirement planning is not easy. It is a budgeting process for the rest of your life for which you must account for many unknowns like inflation, stock fluctuations, changes in real estate prices, personal health costs, taxes and your own longevity.
The most important consideration is your retirement plan and how it may need bolstering. This is a big and important question and many retirees choose to work with a Financial Advisor who can help them create a strong plan.
Depending on your situation, you may wish to rollover your 401k into a financial vehicle that will enable you to:
Guarantee Lifetime Income: Most financial experts agree that guaranteeing adequate income for the rest of your life is probably the most important criteria when considering retirement and how to invest your retirement funds.
Guaranteed lifetime income can come from Social Security, a pension, interest or dividends, a lifetime annuity or a combination of these sources.
Your Social Security and most pension benefits are guaranteed for life. However, if there is a shortfall between this income and your actual expenses, then you will probably want to choose to roll over your funds into an IRA that offers a financial product that will guarantee adequate income to make up that shortfall. There are at least three common ways to insure lifetime income with your 401k rollover:
Earn Interest and/or Dividends: If you have sizable savings to rollover, you will want to carefully consider how lifetime income might be achieved with interest and dividends earned from your capital. However, you will want to carefully consider your investment options so as not to put your principal at risk.
Purchase an Annuity: A lifetime annuity can guarantee lifetime income and many annuities are available with favorable tax treatment for 401k rollovers.
- Systematic Drawdowns: Taking scheduled withdrawals from your IRA and the interest earned on your IRA is probably the most common retirement income strategy. This can be a particularly good strategy if you also purchase a lifetime annuity that would start when you finish drawing down your assets – guaranteeing your income even if your longevity is longer than you expect.
- Provide Adequate Insurance: The second most important issue with retirement is having adequate insurance. You can develop an investment strategy for your rollover IRAs funds to help cover Long Term Care and other medical costs. Depending on the distribution rules for your account, you could also open a Health Savings Account which can provide favorable tax status for your funds. A professional financial advisor who specializes in retirement can help you with this process.
- Maximize Estate Planning: If you have managed to guarantee adequate lifetime income and have sufficient insurance, then you will want to consider rolling over your 401k into an IRA with a firm that provides financial tools and services for efficient estate planning.
- Fund Your Desired Retirement Lifestyle: While you must be diligently responsible with your retirement planning, most retirees also have a few fun ideas about how they would like to spend their time away from work. Whether reading with grandchildren, an African Safari or a vacation home – your retirement interests should also be considered when allocating your retirement funds.
- Combination of Goals and Strategies: Like anyone in any situation, most retirees will want and even need it all – guaranteed lifetime income, adequate insurance, an estate to leave behind and a satisfying life without work. Once you have a better idea of how you need to use your savings for retirement, you can better decide if you require a rollover.
- Rolling Over from a Company Plan: Some 401k plans require that you rollover the funds at retirement. Others do not. However, if your retirement funds are in a company plan, most financial planners advise that you rollover.
The trick is in choosing the right financial products and strategies to achieve your retirement financial needs.
There are two main types of 401k rollover accounts — IRA and Roth IRA. The IRA is also sometimes referred. to as a traditional IRA.
The main differences between the two accounts are related to taxes and the rules surrounding withdrawals.
When opening an IRA at retirement, there are two buckets of fees and costs that you will want to consider: