Ask Me Help Desk - What to do with 401k at retirement

I will be retiring in 7 months and want to have part of my 401 sent to me monthly is it best to roll most of it into IRA accounts and put some into money market savings where I can access some monthly. Do not feel that I will have money to pay an investor. Thanks:)

If you are interested in regular monthly payments you should look into investing a portion of your 401(k) into a traditional lump-sum annuity. The idea is that you get a regular monthly check, like having a pension, in exchange for an initial lump sum investment. Check out the retirement information available with any of the major investment firms: Fidelity, Vanguard, T. Rowe Price. etc. - they all have calculators to help you see how much the annuity would pay each month, based on your age and choice of survivor's benefits. A significant advantage of an annuity like this is that it removes risk of your retirement funds disappearing in a market crash, so you may sleep better at night.

However - one problem with an annuity is that the monthly payment is fixed, and so in ten years or so you may find that inflation has taken its toll and the monthly payment isn't sufficient anymore. It's a good idea therefore to invest only about half of your 401(k) in the annuity and roll the other half into a rollover IRA. The IRA half should be able to grow over time, and hopefully outpace inflation. This gives you a cushion for later years, to boost your income above the level of the annuity, and to act as a cushion against major expenses you may face down the road.

A lot depends on how much you have in the 401K and how much you need monthly. EBaines gave good advice. Another option is to roll it over into an IRA, but to invest in bonds that pay regular dividends. Deepending on how much you have, you may be able to get what you need in income without touching the principle.

Also talk to your benefits people. Many companies offer free investment advice for retirees.

To add two cents on Scott's great advice, you need to compare both 401 K and IRA
See which one you'd liket to have
If you choose a retirement plan based on the tax status of contributions to your account. You can avoid income taxes on your account's principal with after-tax deferrals to a IRA. The traditional 401k provides a short-term tax benefit, but you have to pay income taxes on the principal upon withdrawal.
Avoid relying on a spouse's retirement plan. Each spouse should have their own retirement plan for the most protection. You never know when divorce, illness or death will leave one spouse unprotected.

Quote:

Originally Posted by nicespringgirl

If you choose a retirement plan based on the tax status of contributions to your account. You can avoid income taxes on your account's principal with after-tax deferrals to a IRA. The traditional 401k provides a short-term tax benefit, but you have to pay income taxes on the principal upon withdrawal.

Um, what are you trying to say here? The OP is asking about getting disbursements from the account because he's retiring. He's not going to contribute further. Both IRA and 401K accounts are tax deferred. This means that you make contributions with pretax dollars. The distributions are then taxed as ordinary income when withdrawn. The assumption is that your tax bracket will be lower in retirement.

Quote:

Originally Posted by barann

I will be retiring in 7 months and want to have part of my 401 sent to me monthly is it best to roll most of it into IRA accounts and put some into money market savings where I can access some monthly. Do not feel that I will have money to pay an investor. Thanks:)

Caveat - I don't know what percentage of your IRA amount in seven months you will need to to put into generating monthly income. If you have decided what percentage you need to live on and how long you anticipate your remaining life expectancy than you may want to put some money into a plan that you only get earnings monthly or annually if the plan doesn't do monthly in this case you can allocate it over the following twelve months. Also to the extent you do not touch any money or keep the amount down you initially reduce your IRA will all be money that will continue to earn money to benefit you later in your life. (It is the don't buy a new car or boat etc. the year you retire so as to have that money still working for you in an IRA etc. longer.) You may also want to look at your allocation of risk as now you can choose some other potential roll overs that could provide a higher earnings rate. It is my observation that I needed more money than I initially thought I'd need and have thus put some of my IRA into some mutuals/IRAs paying a higher return.