How to convert retirement accounts into income?

April 6, 2018 8:48 AM

I'm close to retiring (as in months, not years). I have several retirement accounts with money in them that should suffice. What's the best way to convert these into real money? On a side note, I'll be going for Social Security and plan to be married soon - he's rather younger than I am, is there a best way to handle this?
posted by Death and Gravity to Work & Money (9 answers total)

Best answer: What types of accounts are they ? IRA or 401(k) (roth or traditional ?), Pension ? What are the assets in the accounts - cash, mutual funds/ETFs ? What do you want to do with the "real money" ? How much are we talking ?

Best answer is, talk to a fee-only financial adviser/planner. One that knows about social security and any impact the upcoming wedding may have might be harder to find than a typical adviser, but worth looking for.

Next best answer: figure out what you want (income ? an inheritance to leave for kids, setup your own philanthropy, etc), what the tax laws are for your accounts as well as distribution rules. Probably roll-up all the accounts as best you can (eg get lump-sum for the pension and roll that into traditional, 401k into traditional ira, all roth into a roth ira) all under a single brokerage/bank/holding company. Then figure out draw-down rates and what not and invest accordingly. That's why it might be easier to get the fee-only planner and work with them.
posted by k5.user at 9:21 AM on April 6, 2018 [1 favorite]

A couple things to consider:

1. The longer you wait to collect social security, the larger your monthly benefit will be (max at age 70). This is basically a bet on how long you will live. If you think you will live a long time, delay enrolling, if you can.

2. Put money into an IRA in the last year before you retire. This reduces your taxes in that year. Take a distribution of this IRA after you retire and have low income. The taxes on this distribution should be very low.
posted by H21 at 9:34 AM on April 6, 2018

This is too important to rely on the advice of internet strangers.

For the investment question you could move all your money to Vanguards Target Retirement Income Fund but you should really find a fee-only financial adviser.

Factors such as age (spousal and yours) and marriage status can significantly affect Social Security strategy and can be complicated. This book is a good primer.
posted by LoveHam at 10:33 AM on April 6, 2018

A common issue that retirees run into is not having enough Federal tax withheld from their pensions so they end up owing at tax time. Social Security income can become taxable when you have other income. You can ask to have Federal taxes withheld from your SS payments if you would rather pay throughout the year and the usual amount is ten percent. Taxes are another thing to discuss with your fiance.
posted by soelo at 10:43 AM on April 6, 2018

The basis for any decision is budget. Get as good a handle on your monthly/annual expenses as you can.
posted by SemiSalt at 10:45 AM on April 6, 2018

The simplest answer is that any of these accounts can be set up to give you an automatic monthly withdrawal so you have cash to live on. Usually you want to leave the money in a retirement account until you need it because you will (usually) pay taxes on it as it comes out.

Second, you can usually roll over your retirement accounts into one account that makes it easier to manage. So, instead of having a mix of different IRA and 401k, you would have just one (or two if there is a Roth IRA in the mix.) I like Vanguard because they are low-cost and well run. Even after you do that, you still have to make some decisions about how much to withdraw (big enough to live comfortably, small enough that you don't run out, smaller still if you want some left over as an inheritance) and how to invest the rest of the money until you need it.

If you were really committed to doing in yourself, I would recommend the Vanguard Retirement Income Fund mentioned above, but you would probably be much better off if you spend get one-time professional advice to get things set up.
posted by metahawk at 2:19 PM on April 6, 2018

If finding a good fee-only investment advisor is too difficult or is taking too long, a knowledgeable CPA should be able to map out a strategy for you to follow. Mine was able to do it for me, although she also has an MS in taxation so YMMV.
posted by DrGail at 3:29 PM on April 6, 2018

i had understood that Social Security was looking at actuarial tables and was calculated so that you get roughly the same total payout (as opposed to monthly payout) whether you start withdrawing earlier or later, so LoveHam is correct that you are betting. If you outlive your life expectancy waiting may be better. If you die earlier than expected, then starting as soon as possible may be better. So I think this comes down to how healthy do you think you are, and how much you need that income more than waiting as long as possible just so you have larger monthly payments. Unless people have information I don't that suggestions their actuarial tables are flawed in some way.

I would expect that most major brokerages have advisors that can help you with a drawdown strategy without much if any cost, so you may want to investigate that while also considering the recommended fee only advisor.
posted by willnot at 3:31 PM on April 6, 2018

Technically with Social Security, you apply for benefits at the appropriate age, and then can postpone receiving payments until later. Don't just wait around until age 70 or whatever. Go talk to them a month or two before your normal eligibility date. Or, if you really need the money, go earlier. You can start earlier but of course the payments will be less.

It makes sense to postpone if you are in good health and have other income to live one. Failing either criterion, it doesn't make much sense.
posted by SemiSalt at 5:45 PM on April 6, 2018