• Getting Closer to Retirement
  • Useful Guidance
  • Retirement Countdown
  • Sources of Income
  • How to save more - and invest smart
  • Closing the gap between what you have and what you need
  • How to turn your retirement savings into income
  • Strategies to maximize your Social Security
  • Taxes matter


• Calculators & Tools
  • IRA Calculators
  • Retirement Income Quick Check Calculator
  • How much could I end up with?
  • What is the impact of a small savings increase?
  • How tax deferred investing adds up
  • Withdrawal Calculator

After years of investing and planning, retirement is finally a date on your calendar.

You've lined up your sources of income, and you've decided whether to continue to work part time as a transition to full retirement. You have invested for retirement in your workplace plan, through a plan for the self-employed or through IRAs and personal savings — or a combination of the above.

Now, it's time to turn your retirement investments into income. Decide what role your savings will play in your income plan. Then choose a strategy to put your plan into action.

Don't simply withdraw money when you think you need it!

Do have a plan that can help you maximize your income, minimize your taxes and stretch your savings as long as you can!

Learning to "dip"

The transition from regular paycheck to a plan for retirement income involves a shift in thinking. During your working years, your employer paid you regularly — placing money into your checking account.

Now, you have a nest egg of retirement investments that you must learn to "dip" into. The challenge is to know how much you can take in order to stretch your savings to last a lifetime.

Consolidate

To simplify the income process, consider consolidating your assets and accounts with one or two trusted financial institutions.

Generally speaking, the fewer institutions you have to deal with, the easier it is to transfer money.

Set realistic expectations

Most retirees overestimate the amount they can withdraw each year from their savings without running out of money. Plan to limit your withdrawals to no more than 4% annually.

Choose a role for your investments

The size of your retirement nest egg, the amount of other resources and your total income needs will determine the role your retirement savings play in helping you create income.

Do you expect to:

• Rely on your investments for most or all of your retirement income?
• Use your investments to supplement other sources of income?
• Serve as your back up or emergency account while other resources provide income?

Rely on your investments for most or all of your retirement income?

Your tax-deferred investments represent income potential — but in order to turn them into income, you need to choose an approach.

Here are some considerations:

• Sell shares from all of your funds or from selected funds to come up with the amount of your withdrawal. Your distributions will be reported to you and to the IRS at the end of the year and are subject to income tax.
• Direct the dividends or interest income into a money market fund or your bank account up to the withdrawal amount you've chosen. Be careful — if your dividends and interest income are more than you've decided you can withdraw, keep the excess working in your tax-deferred account.
• Create a separate "income" account, fund it with at least two years of your estimated income need by selling some of your investments or transferring the cash portion of your allocation to this account.
• Choose a systematic withdrawal program, which your financial provider can implement. It won't guarantee lifetime income, but the plan will be designed with that potential in mind.
• Purchase an immediate fixed annuity with a lump sum of money that will generate the level of income stream you require. Do your homework before you make a purchase. Choose an insurance company with a top rating and look for low fees.

Whatever approach you choose, it's important to separate your investments from your income for two reasons.

1. With two years of income set aside in a separate account, you can weather a brief period of volatility in the markets without having to worry about where your income will come from.
2. It will help you discipline yourself to live within your means. Your retirement investments are too important to treat like a big chunk of candy that you'll take a bite out of whenever your appetite for spending kicks in.

Use your investments to supplement other sources of income?

Using the 4% guideline, figure out how much money you can afford to withdraw each month. Arrange for a regular withdrawal from your investment accounts to your checking account in that amount.

It's easy and convenient and it will help you avoid the temptation to take too much out of your investments.

Or, take a lump sum of money and purchase an annuity that will match your supplemental income needs. Keep in mind that your annuity payments will not increase over time unless a cost of living adjustment is included.

Serve as your back up or emergency account while other resources provide income?

If your investments are modest and you're comfortable with the income you have from other sources, this is a good role for your retirement investments.

Your nest egg can help bail you out when your auto or home needs a major repair, an appliance needs replacing or health care costs exceed your coverage.

If your investments continue to grow because you've escaped these calamities, your investments can also help provide some extras, such as a special vacation — or wedding gifts for the grandkids.

But don't go overboard — maintain a minimum balance in your emergency account at all times.

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AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, or legal, tax or investment advice, or a legal opinion. Individuals should contact their own professional tax or investment advisors or other professionals to help answer questions about specific situations or needs prior to taking any action plan based on this information.

The Financial Advisors are investment adviser representatives of AARP Financial Inc., an investment adviser.