You've been saving and investing for years. Now it's time to turn those investments into income sources when you retire. So, how do you do this and where do you start? Here are four steps to consider when making the jump into retirement.
Understand the different types of retirement accounts
It's important to not only understand these accounts, but grasp the tax implications of the income they will produce. While many investment vehicles exist, most of these fit under one of three categories: After-tax accounts which includes Roth IRAs. Pre-tax accounts which would be Traditional IRAs, 401(k)s and 403(b)s. And, Non-qualified accounts with no tax-sheltering. This would include any brokerage accounts.
Group all liked-accounts together
For simplification purposes, we recommend you put all of your liked-accounts together into one vehicle. For example, if you have multiple 401(k) accounts from previous jobs, it'd be best to roll those over into one Traditional IRA. Not only will it be easier for you to create your income plan, it will be much simpler for your heirs in case of death.
Define your retirement income goals
It's crucial you understand how you want to spend your money in retirement. Many people want to live off of the income produced by their investment dividends and interest only. They want to leave the principle alone to give away and/or leave to their children. However, other people desire to spend all of their money in retirement.
Distribute income as tax-efficiently as possible
Next, you want to begin setting up income distributions from those accounts in the most tax-efficient way possible. How this is done will depend heavily on your other sources of retirement income. Also, remember that required minimum distributions (RMDs) need to be factored into this equation as well.
If you need help building your retirement income or assistance making decisions with your investments, please, don't hesitate to call. You can reach me at 320.222.4236 or email me at matt@taatjesfinancial.com.
