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Creating your retirement paycheck

Ah, retirement. After working for most of your life, your retirement years are when you can really enjoy “me time.” You may want to travel, learn a new hobby, volunteer and more. You have myriad options on how to spend your time.  

You’ll also have many things to consider such as how your lifestyle impacts expenses, your income sources, and how and when to take distributions. We’re here to help as you move into this new and exciting stage of life. 

Retirement income sources1

Employee population gender demographics A pie chart showing that the split is 72 percent female and 28 percent male. 41% Social Security 30% Pension/Retirement 13% Interest and Dividends 10% Employment Earnings 6% Other Employee population gender demographics A pie chart showing that the split is 72 percent female and 28 percent male. 41% Social Security 30% Pension/Retirement 13% Interest and Dividends 10% Employment Earnings 6% Other

Retirement withdrawal options  

A variety of withdrawal options are available to meet your needs in retirement. You can create a retirement paycheck by choosing to keep your money in your current plan, schedule payments, withdraw part of your balance or take a full cash withdrawal. Learn more about your options below. You may also want to consult your tax advisor regarding your own tax situation.  

Leave it in plan

Most plans allow you to keep your money where it is, as long as it is above a certain threshold, often $1,000. There are benefits to staying that you should consider, including: 

  • Continue tax-deferred growth
  • You’re familiar with the plan and investment options
  • No extra work for you  
  • Investment management fees may be lower
  • You still have the option to move your money in the future
  • Federal bankruptcy protection 
  • Account balance may be able to be paid in installments (if plan allows)

Partial cash withdrawal

With this option, you get a portion of your account balance.

  • Allows you access to money as you need it
  • Remaining money continues to grow tax free
  • Triggers mandatory 20 percent withholding for federal taxes 
  • If younger than 59 1/2, the distribution may be subject to a 10 percent early withdrawal penalty 

Roll it out of the plan

You can also choose to move your account balance to an Individual Retirement Account (IRA) or another qualified plan. With this option: 

  • You may have investment options not available to you within the plan. Make sure you compare the fees.
  • If you have money invested in both pre-tax and Roth accounts, your pre-tax money must be rolled into a regular IRA; Roth money must be moved into a Roth IRA. Or the other qualified plan must have pre-tax and Roth. 

Lump sum withdrawal

With this option, you get the balance of your retirement account all at once, but there are consequences to this option, including:  

  • Loss of tax-deferred status
  • You must pay income taxes on distribution  
  • It triggers a mandatory 20 percent withholding for federal taxes 
  • If younger than 59 1/2, the distribution may be subject to a 10 percent early withdrawal penalty 

Installment payments

If your plan allows, installments provide equal payments to you at set periods of time over a specific number of years. 

  • Payments are made semi-monthly, monthly, quarterly, semi-annually or annually.  
  • You have three payment options — a flat dollar amount, a number of payments or a percent of current value.  
  • Payments are directly deposited into your checking or other bank account. 
  • Withdrawals end when account balance is exhausted. 

Required Minimum Distributions

When you reach age 72, the IRS requires you to withdraw a minimum amount from your tax-deferred retirement accounts each year. The amount you must withdraw depends on the balance in your account and your life expectancy as defined by the IRS. If you do not withdraw at least the minimum amount, the IRS will impose a penalty tax up to 50 percent on the amount you should have withdrawn, so it’s very important that you make these withdrawals.

Learn more about RMDs

Social Security’s role in your retirement 

The best age to begin receiving Social Security benefits depends on several factors, including:

  • When you plan to stop working
  • How much you’ve saved
  • Your health
  • Marital status and what your spouse earns
  • Other factors  

Overall, the longer you wait to take payments, the larger your payments will be. Partial benefits begin at age 62 and full benefits begin at age 66 or 67 if born in 1960 or later. Each year you delay, your benefit increases by 8 percent until you reach age 70. 

Visit ssa.gov to learn more and see what your estimated Social Security payments will be.

Getting close to retirement?

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1. Secure Retirement Institute, Fact Book on Retirement, 2019

This information is a general discussion of the relevant federal tax laws provided to promote ideas that may benefit a taxpayer. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation. 

DOFU 5-2022

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