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I will be retiring in 6 to 9 months. How should I distribute my 401k contributions, in order maintain current balance?

Jun 06, 2013 by Joseph Y from Alhambra, CA in  |  Flag
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5 votes

If I understand your question correctly, your desire is to maintain you current balance in your retirement plan because you need to have access to spending it in the next 6 to 9 months.

Many plans, if not most, have a money market, stable value, or cash option as an investment choice within the plan. While these are not absolutely guaranteed they are probably the least likely to lose any value. Make contact with the plan by phone, internet, or in person and request that your funds be moved to one of these investment options.

As to the unasked question: Is it a good idea to stop being an investor just because I am retiring? I would suggest the answer is no unless you are going to spend all of the funds in a short period of time.

Comment   |  Flag   |  Jun 06, 2013 from Kingsport, TN

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4 votes
Rich Winer Level 20

Joseph, if you can meet your cash flow needs with a 4% annual withdrawal rate (or less), that's always my preference. As long as the financial markets cooperate, a 4% withdrawal rate makes it easier to maintain your current balance and perhaps even continue to grow your retirement nest egg. A 6% withdrawal rate is not too bad, but the higher you go, the more pressure you put on your investment portfolio to generate higher returns to maintain your current balance or grow your money. Something else to consider is whether you will want to keep your 401K where it is or roll it over into an IRA. In most cases, I recommend rolling company retirement plans to an IRA where you will have substantially more investment options (individual stocks and bonds, mutual funds, etc.). You may want to consult with a financial advisor to help you make that decision and to perhaps help you manage your investments more effectively. Effective management of your investments in retirement is as important as your rate of withdrawal. Also, if you own any of your employer's company stock in your 401K plan (if applicable), you should consult with a financial advisor who understands NUA (Net Unrealized Appreciation) and potentially help you same a lot in taxes. Hope this helps. Feel free to reply to this post or contact me if you have further questions.

1 Comment   |  Flag   |  Jun 06, 2013 from Woodland Hills, CA
Rich Winer

After reading John's answer, I'm not sure if I answered your question (although I think we both gave you some good advice). I was obviously addressing how you can maintain your current balance once you begin taking distributions in 6 to 9 months. John has effectively addressed how you can allocate your funds over the next 6 to 9 months to maintain your current balance. John makes a good point in that it may or may not make sense to dramatically change your current allocation and make it more conservative in order to maintain your current balance. There are a number of variables that would need consideration. Again, you might want to consult with a financial advisor.

Flag |  Jun 06, 2013 near Woodland Hills, CA

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4 votes

Hi Joseph! Congratulations on reaching this milestone and I hope you enjoy the next phase of your life. You may have some options for handling your retirement money, so I do recommend that you visit a financial planner to discuss your retirement needs. If you are looking to move your 401(k) money into a rollover IRA account, you can do a direct transfer by completing forms available through your HR department or 401(k) plan provider. By doing a direct transfer, you will avoid taxes on the transfer amount. You may or may not be able to maintain the same investments you currently hold in your 401(k) as some of them may be institutional funds that are not available through a retail account. This alone is a good reason to talk with a planner to be sure you are invested in funds that will work for you. Happy retirement to you!

Comment   |  Flag   |  Jun 06, 2013 from River Hills, SC

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3 votes
Andy Tilp, CFP® Level 16

Hi Joseph

The other answers have some good information. However, I would like to take a bit different angle on your question. So I’ll start the answer to your question with a question – is the 401k your only asset for retirement?

The reason I ask is, as you restructure your portfolio from an accumulation phase (while working) to the phase where the assets are dispersed (i.e. retirement), you need to consider your portfolio in its entirety. Thus, if you have other accounts, such as taxable investments, IRAs, Roth IRA, etc, you need to put a strategy and structure that allows to all work together. You need to have a known, safe source of funds for 2-3 years of income, call it a ‘paycheck’ account that allows for a time buffer for market volatility. You can use money market, CDs or other low-cost guaranteed options, as mentioned in other comments. You also need a growth component to your portfolio, so you can ensure that you purchasing power will not be lost to inflation.

I don’t know if I answered your question, but your question suggests there is a larger, more strategic question that needs to be answered first. You should look at your situation over the long term and establish strategies that will help ensure your long term goals and needs are met. Chances are, this money will need to last for many years, perhaps even several decades.

If this sounds a bit more complicated than you want to address, it might be helpful to sit down with a fee only financial planner and have them help map out your future, as well has recommend how to structure your 401k and other investments. A good place to find a fee only planner that charges by the hour is at the Garrett Planning Network or at NAPFA.

Good luck

Andy Tilp, CFP®

Comment   |  Flag   |  Jun 06, 2013 from Sherwood, OR

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3 votes
Peter C. Karp Level 20


Congratulations on your upcoming retirement. It is good that you have taken advantage of participating in a 401(k) during your working years and accumulated a nest egg for your retirement. There are several options that are available for distributions from your 401(k) upon retirement but in order to preserve your assets there are a number of things you need to consider. A stable retirement is critically important to working Americans. More and more people are keen to have a portion of their portfolio in a guaranteed mode not only because of their age, but because of market volatility. The reality today is that more people have longer life expectancies, so retirement is lasting longer than ever and the quality of retirement is also changing. Not only are retirees living longer, they have more active lifestyles which often requires more income to maintain. The new reality is retirement plans may need to last at least 30 years and with probabilities like this you need a source of retirement income you can depend on. It is important that you consider your entire financial picture before determining distribution options from your 401(k) account given the market environment. Consult your investment advisor to determine the best options for you or contact our office at 415-345-8185 for a consultation.

Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Financial Telesis Inc., member SIPC/FINRA. Financial Telesis Inc. and Karp Capital Management are not affiliated companies

Comment   |  Flag   |  Jun 13, 2013 from San Francisco, CA

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1 vote

All of the above... a money market, fixed, or guaranteed option will be your best bet if you're concerned about a possible downturn in the market during the next few months.

Comment   |  Flag   |  Jun 06, 2013 from Springfield, MO

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1 vote
Alex Bentley Level 18

This is a hard question to answer without more information. You need to go back to the basics and do a full review of your retirement income from all sources, then have a plan for spending your assets in retirement. Unless you are comfortable doing this yourself, get an advisor.

Comment   |  Flag   |  Jun 15, 2013 from Pacific Palisades, CA

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0 votes

Joseph, you have gotten a lot of good answers. I'm still not really sure how to interpret the question.

If you are asking how to keep your account balance at it's current level after you reach retirement and begin to draw from it, then 4-6% withdrawals are where you should feel safe that, over time, your account can reasonably perform at those levels. I agree that you should look at at your overall portfolio and develop a sound, well diversified financial plan. It is so much better to develop an overall financial strategy than just trying to figure out how to deal with one aspect at a time.

If you are asking how to invest for the short term until you actually retire, there are money market and stable value funds that will limit, but not completely eliminate volatility so you can feel safer with your investment.

Seek advice from a qualified CFP(R) in your area. Ask for referrals from trusted friends, neighbors and associates. find a financial advisor you feel comfortable with.

Comment   |  Flag   |  Jun 07, 2013 from Delray Beach, FL

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