4 Important Retirement Decisions

Retirement DecisionsSome people are extremely disciplined when it comes to saving diligently and investing wisely for retirement throughout their working lives. But the need for discipline and diligence doesn’t stop when you actually reach retirement age and enter your golden years.

This same level of discipline and discernment is also required when making financial decisions during retirement. “Unfortunately, some retirees mistakenly assume that once they’ve reached retirement, they can coast to the finish line,” says David Lerner Associates Executive Vice President Martin Walcoe. Below are four important decisions and considerations that must be made and considered near or during retirement:

1.  At what age will you retire?

This is the first obvious near-retirement decision. The age of 65 is often considered to be the traditional retirement age in the U.S., but there’s no official age at which people are forced to retire (unless they work for a company that has a mandatory retirement age).

“Among the factors that will affect this decision are your health, your job stability and the amount of money you have saved in your retirement portfolio,” says Walcoe. While you probably don’t have much control over the first two factors, you may have some control over the amount of your retirement savings by contributing as much money as possible to your retirement account throughout your working life and making wise investment decisions.

2. When will you start receiving Social Security benefits?

If you have worked enough hours to be eligible to receive Social Security retirement benefits, you have the option of receiving them starting at age 62. But the longer you wait to begin receiving benefits (up to age 70), the larger your monthly benefit check will be.

“There are different opinions about whether it’s smarter to start receiving benefits as soon as you can, and receive a smaller monthly benefit amount but potentially for a longer period of time, or wait until later and receive a larger monthly benefit amount,” says Walcoe. “This can be a complex decision, and the factors are different for each individual.”

3. How much will you have to pay in taxes?

Walcoe notes that many people don’t realize that up to 85% of their Social Security benefits could be taxable. This could be the case if earnings from both taxable and tax-free income (including tax-free investments like municipal bonds) and half of your Social Security benefit exceed a certain threshold. In 2014, this threshold is $25,000 for individuals or $32,000 for married couples filing jointly.

“In addition, retirees may have to pay income tax on distributions from their retirement plan,” says Walcoe. Distributions from traditional IRAs and 401(k)s are generally taxable, while distributions from Roth IRAs and Roth 401(k)s generally are not taxable. Be sure to consult with your tax advisor about your specific situation.

4. How will you allocate assets in, and take distributions from, your retirement portfolio?

It’s often common for retirees to adjust their retirement portfolio’s asset allocation as they near and enter retirement. “For example, retirees and near-retirees might shift their asset allocation to include a higher percentage of cash equivalents and fixed-income investments and a lower percentage of equities,” says Walcoe. “This may help preserve their assets by reducing overall portfolio risk.”

Important decisions also have to be made about how money will be withdrawn from the portfolio during retirement. “Try to determine how much money you can withdraw from your retirement portfolio each month to meet your budgeted retirement living expenses without jeopardizing your portfolio’s long-term future,” says Walcoe.

Two common retirement distribution strategies are withdrawing a set dollar amount of money each month, and withdrawing a percentage of the account balance each month. “With the former strategy, the amount of income is more predictable, which may make personal budgeting easier,” says Walcoe. “However, the percentage strategy provides more control over the funds withdrawal rate and the portfolio’s overall drawdown.”


David Lerner Associates does not provide tax advice. Before following any strategies with potential tax implications, please consult your personal tax advisor, tax attorney, accountant or other qualified advisor.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC.

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