When retirement is just around the bend, it's time to shift your focus from accumulating assets to turning those assets into a source of income so that you enjoy your years in retirement. Your retirement income strategy should have two main objectives: making sure your money will last at least as long as you do and maintaining your purchasing power in the face of inflation.
To craft a good retirement income strategy, you need to ask yourself a number of important questions. For example, when will you really be able to afford to retire? How much income can you expect to receive from your invested assets, pensions, Social Security and other sources? How should you invest going forward? Should you convert any assets to lifetime income in the form of a guaranteed lifetime income stream? When should you start taking Social Security, and how will the amount of your benefit be affected by your start date? What will your expenses be like after you retire?
Your income planning should include building a budget for known and unknown expenses, a valuable tool for managing your cash flow.
All this planning can be complex and time-consuming. However, one way you can save yourself time and effort is by consolidating retirement assets from multiple accounts into a single IRA.
Consolidating assets into a single IRA offers these benefits for generating retirement income:
You can elect to start receiving your Social Security retirement benefit as early as age 62, but there may be financial advantages to waiting until "full retirement age," the age at which you can receive a full benefit. Full retirement age increases based on when you were born and ranges from age 65 to 67. If you wait beyond full retirement age to claim your benefit, the benefit will increase even more each year until you reach age 70. You can find out your full retirement age here, and you can read more about deciding when to claim Social Security.
It's easier to put off receiving Social Security when you have assets in a consolidated IRA to make up for at least some of the Social Security income you would otherwise be receiving. You get all the advantages of consolidation as outlined above while maximizing your Social Security benefit.
Just be sure you understand all the costs of consolidating. For example, some IRAs, tax-deferred plan contracts and mutual funds have withdrawal penalties and back-end loads that may take a substantial bite out of your assets.
Generally, assets from any Traditional IRA or non-Roth assets held in an employer-sponsored retirement savings plan can be converted to a Roth IRA. A Roth IRA can be a good vehicle for consolidating retirement assets, for these main reasons:
Keep in mind that the short-term tax costs of a Roth IRA conversion can be significant. When you convert, you pay taxes on contributions you previously deducted as well as on any accumulated earnings. A conversion can also push you into a higher tax bracket, especially if you're converting a large amount of money. Finally, a separate five year holding period applies to Roth conversions to avoid potential penalties for distribution of converted money before age 59 1/2. Consult your tax advisor about your situation.
Some financial firms offer more options for receiving retirement income than others. The financial strength of the financial firm might also be a consideration. Think about consolidating assets with a company that offers a variety of income options, such as annuities and systematic withdrawals, so you can better tailor your income strategy to your needs.
Rollovers and transfers may be subject to differences in features, costs, and surrender charges. Indirect transfers may be subject to taxation and penalties. Consult your tax advisor regarding your situation.
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.
The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Past performance does not guarantee future results.
Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Rebalancing does not protect against losses or guarantee that an investor’s goal will be met.
Please note lifetime income is a guarantee subject to the issuing insurance company’s claims paying ability.
There are benefits to an IRA rollover.