The transition from working and accumulating assets to retiring and drawing an income poses a unique set of financial considerations. One of the biggest challenges you may face is determining how to generate an income stream from your hard-earned retirement savings that will support your new lifestyle – and last as long as you need it. At this stage, making the right choices can be even more critical because you no longer have the luxury of waiting out market downturns. Retirees must meet their expenses from the actual returns their portfolios generate – returns that may fluctuate unpredictably from year to year.
How your retirement income stream is generated will be an integral component of your overall retirement plan. Your Legend Group Financial Professional can work with you to align your resources with your objectives, and to develop suitable distribution strategies to help satisfy specific financial needs, such as:
- providing an income throughout your retirement years
- providing for the income needs of a spouse
- maintaining the tax-deferred status of your retirement savings as long as possible
- minimizing taxes and avoiding penalties
- leaving a legacy
In conjunction with your Financial Professional, the expertise of a qualified tax professional can be essential to the development of a successful retirement income strategy.
Retiring employees who have participated in an employer-sponsored retirement account have several payout options. Your choices may include:
- Annuitization (a variable annuity, or a fixed annuity providing set payments for life)
- Periodic withdrawals with amounts and frequencies based on your income needs
- Partial distributions
In addition, you may roll your account into an IRA. An IRA rollover can provide for greater control of your funds, and rolled assets are not limited to the payout and investment options offered by your employer’s plan. Furthermore, like employer-sponsored retirement accounts, IRAs may beaccessed via periodic withdrawals or partial distributions. Of course, you’ll want to consider the fees and charges before rolling one investment into another.
Annuities are designed to provide an income that can continue as long as either you or your spouse is alive.1 If you annuitize, you forfeit control of your retirement assets in exchange for a series of payments. Essentially, your principal is converted to an income stream, and is no longer accessible. This is usually a one-time decision that cannot be revoked.
Fixed annuities guarantee a pre-determined income per month, but over time, inflation may erode a fixed income’s purchasing power. Variable annuities may keep ahead of inflation, but their performance will fluctuate with the financial markets.
Many retirees choose to access their employer-sponsored retirement accounts and IRAs via periodic withdrawals or partial distributions because of the flexibility these options provide. A periodic withdrawal plan can be structured to make regular, automatic withdrawals with amounts and frequencies that are based on your retirement income needs. Partial distributions may be made in any amount at any time, as funds are needed tocover your living expenses. These types of withdrawals can be directed to amoney market account offering check writing privileges. With a traditional retirement account, only the amount distributed is taxed as income, while the balance remains invested and maintains its tax-deferred status.2 Qualified distributions from Roth accounts are tax-free.3
Before deciding whether to retain assets in an employer plan or roll over to an IRA an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, possession of employer stock and reduction/elimination of guaranteed benefits from the pension plan.
Insurance can be an important component of your overall financial strategy. While its primary purpose is often protection, insurance coverage can offer additional benefits:
- Cash to your estate to pay debts, taxes or other expenses
- Legacy/wealth transfer strategies
- Asset accumulation and distribution strategies
Just as you regularly review your investment portfolio, your insurance coverage should be monitored to help ensure that it continues to reflect your goals and performs according to expectations. The primary goal of a policy review is to evaluate your current needs, current coverage level and beneficiary designations. A variety of factors may influence the effectiveness of your overall insurance plan. It is important to review your options in an effort to optimize the benefits and cost-effectiveness of your coverage. A Legend Group Financial Professional with insurance knowledge can work with you to assess your insurance needs as part of your investment plan.
Professional Portfolio Management
For investors who lack the time and expertise required to select and maintain an appropriate combination of investments, Legend Advisory offers professional portfolio management programs. These programs provide built-in diversification*, asset allocation techniques, professional investment selection and ongoing investment management through actively managed mutual fund portfolios with objectives that range from conservative to aggressive. Find out which portfolio may be best suited to your objectives. The portfolios are monitored regularly and reallocated as deemed necessary in an attempt to capitalize on potential market opportunities and minimize the impact of market downturns.
Work with a Financial Professional
Crafting your investment strategy is a team effort. Let a Financial Professional walk you through the process every step of the way. Whether you are a beginner or have experience in the industry, The Legend Group is here for you. Our Financial Professionals have the skills, knowledge and experience to guide you in creating and implementing an effective plan designed to reflect your unique investment goals. He or she will help you determine your risk tolerance, time horizon and investment objectives, as well as choose the appropriate options to help you feel more secure and worry a little less. Your Financial Professional can meet with you periodically to review your needs and discuss any changes in your financial objectives or situation to help ensure you remain on track as your plan progresses.
An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
*Diversification or asset allocation do not assure a profit or protect against market loss.
Lincoln Investment and its affiliates do not provide tax, legal or estate planning information or advice.
1Guarantees on annuity contracts with regards to living and death benefits are contingent upon the claims-paying ability of the issuing insurance company. Distributions from annuities are subject to ordinary income tax in the year distributed. Distributions taken prior to age 591/2 and/or prior to the end of the contract's surrender period may incur an additional 10% penalty and/or surrender penalties.
2Distributions from a traditional retirement account are subject to ordinary income tax in the year distributed. Distributions taken prior to age 591/2 may incur an additional 10% penalty.
3Distributions from a Roth account are tax-free provided the account has been open at least five years and the individual account owner has attained age 591/2. Otherwise, withdrawals of earning may be subject to a 10% penalty in addition to ordinary income taxes.
Before investing in a mutual fund or variable annuity, consider its investment objectives, risks, charges and expenses carefully. The prospectus for a mutual fund or the policy prospectus and prospectuses for the underlying investments of a variable annuity, which contain this and other information, can be obtained by contacting Lincoln Investment. Please read the prospectus or prospectuses carefully before you invest or send money.
A variable annuity is an insurance contract which offers three basic features: (1) annuity payout options that can provide guaranteed income for life; (2) a death benefit; and (3) tax-deferred treatment of earnings. The value of the separate account of variable annuities is not guaranteed and will fluctuate in response to market changes and other factors. Variable annuities are designed to be long-term investments and early withdrawals may be subject to tax penalties and charges. None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.