HOW TO ACTUALLY USE YOUR 401K RETIREMENT SAVINGS
So you have a 401K plan
that you have been contributing to either through your work or by
yourself that will be used for your retirement. A 401K plan is a great
investment to make but at the same time can be pretty hard to
understand. Once you have saved up a good amount of money in your 401K,
there are steps you need to take to ensure that your money will be safe
over the years. One aspect of a 401K that you need to understand is
that when you are ready to actually use the 401K money you will need to
do a 401K rollover. A 401K rollover is moving the
funds from the current investment, from either your employer or own
account, to another more suitable investment where you can actually
control and spend the money. There are two main situations when you
would rollover a 401K. The first situtaion to rollover your 401K is
when you leave your current employer, and the second is when you retire
(age 59 1/2) and can now actually spend the 401K savings.
When you are currently working, you must know
that when you start a new job your existing 401K plan will stay with
your last employer until you move it. Right when you start a new
career, your old 401K plan should be moved into a new account where you
can control the 401K investment. When moving all of your 401K savings
from your old account, it is best that a financial advisor roll over
the 401K so that you avoid any penalties and get it moved
correctly. You don’t want to worry about messing up your retirement
nest egg - so let a licensed professional handle the dirty work.
When you are ready to retire, you will need to learn what to do with
your 401k since you can actually start spending the money you have
saved over the years. While a lot of people have a basic understanding
on how to save for retirement using a 401k, many people have no idea on how to actually spend the money!
HOW TO ACTUALLY SPEND YOUR 401K PLAN
- You should know whether your 401K plan was a “traditional 401k” or a “Roth 401k”. This makes a big difference because with a traditional 401K you have to pay ordinary income tax on any money spent, and with a Roth 401K you get all of the money tax free (since you already paid taxes on the Roth 401k)
- If you have saved up a nice sum of money in your 401K you should next set a budget for X amount of years
you want to have an income stream. Many people who are over the age of
60 should expect to live for the next 20-25 years. That is a long time
for retirement. Since running out of retirement money is a major worry
of today's seniors here is a good example of how you can setup a budget
to spend your 401K money:
- John
retires at age 65. His 401k plan has grown to $1.5 million dollars over
his lifetime and he is ready to start making withdrawals. John wants
to have a steady monthly income stream for the rest of his life.
John’s has the option is to purchase a lump sum immediate annuity that will pay out monthly streams of income for the rest of his life. Depending on exactly which annuity John gets, he can expect to receive over $8,000 a month guaranteed for the rest of his life. In some cases, John can even have payments made to his children and/or relatives when he passes away.
There are many options you have when you are ready to spend your 401k
plan and you should always review them carefully. As hard as it is
accumulating savings over the years into a 401K plan, it can be even
harder to use the money wisely so you don’t run out! The good thing is
that there are licensed financial professionals that know exactly what
you are going through and can help you make a comfortable, informed
decision on how to spend your 401K savings.
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