Consumer Page: Plan ahead to transition savings to income

Source: Tulsa World, Okla.迷你倉Aug. 28--After decades of saving and investing, turning the balance into a retirement income stream is a difficult about-face for most savers. Do you turn it into an annuity or draw down the pile as you need it and hope you don't outlive it?Immediate annuities: These are insurance against outliving your money, says the Bankrate.com website, and are what you do with a lifetime's dollar pile. You give an insurance company the pile and it pays you a certain amount every month until you die.After decades of saving and investing, turning the balance into a retirement income stream is a difficult about-face for most savers. Do you turn it into an annuity or draw down the pile as you need it and hope you don't outlive it?Immediate annuities: These are insurance against outliving your money, says the Bankrate.com website, and are what you do with a lifetime's dollar pile. You give an insurance company the pile and it pays you a certain amount every month until you die.Deferred annuities: These are another kind of annuity that you spend a lifetime plugging dollars into, tax-free, and then pay taxes on what you draw out at the end. The insurer operates on a certainty (the average life span of someone like you), pricing annuities so that it will marginally retain more funds than its aggregate payout to you. Clients receive the certainty of a guaranteed retirement income.Split with heirs: Annuities can have other provisions, such as a guaranteed number of payment years. If you (and your spouse, when applicable) die before the guaranteed payment period is over, the insurer pays the remaining funds to your estate.Piles to flows: The problem is some people have trouble going from piles to flows. Annuity alternatives are living off interest and dividends or using the "4 percent rule" for withdrawals but this can leave you subject to market whims or pursuing investment strategies based on your need for income instead of a prudent approach that optimally balances risk and reward.Investing mistakes made during retirement can be much more detrimental to a retiree's standard of living than those made in decades of working. See Investopedia.com's treatise on annuities at tulsaworld.com/INVannuitiesDon't miss contributions to your 401(k) and IRAsA recent survey by financial services organization TIAA-CREF found that 80 percent of respondents nearing retirement age were not contributing to Individual Retirement Accounts, says the Bankrate.com treatise "Seven retirement investing mistakes."The tax-favorable 401(k) plans and individual IRAs are a huge leg up in getting to retirement as they enable your tax-deferred earnings to compound and with traditional plans investors get immediate tax breaks for their IRA contributions. See 10 articles on the benefit of IRAs by Investopedia.com at tulsaworld.com/INVIRAsFree money lost: It is especially foolhardy to pass up the opportunity to invest in a 401(k) plan when your employer matches a portion of your contributions. That's because you're passing up free money -- the equivalent of refusing a sa文件倉ary increase. Sign up for your company's 401(k) plan and start with at least 10 percent of your salary. If you start in your 20s, raising your percentage each year as your wage increases, you won't miss it and will be able to retire in style.Not saving enough: The average contributor contributes only 6 percent, says Anthony Webb, senior research economist at the Center for Retirement Research at Boston College. Employers typically match 50 percent of the first 6 percent the employee contributes, meaning the average employee saves only 9 percent of salary annually -- not nearly enough -- and are forced to work through retirement years.High fee plans & investments: Until recently, participants in employer-sponsored 401(k)s had no way of knowing their plans' operating costs and most didn't know their plans had costs. From mutual fund expenses to record-keeping costs, fees add up. This translates to fewer dollars available for compounding and a lot less money at retirement.Plan fees run as high as 4 percent, but an acceptable level is 1 percent to 1.5 percent, including the mutual fund "expense ratio" fee. Participants should ask if their plan uses professional fiduciaries. A named fiduciary can save a plan enough money to pay for their expense. Workers can control mutual fund costs by making smart investment choices. High fees negate performance profits making low-cost index funds best.Stock aversion: Except for extremely frugal savers paid well enough to maximize their contributions, most people need the substantial returns of stock investment in their portfolio to arrive at retirement with an adequate pile of money.A Franklin Templeton (mutual funds) survey found that 37 percent of long-term investors believe they can get by without stock investment. Young people were most likely to avoid stocks -- as 56 percent of 25-to-35-year-olds think they can reach their goals without stocks. Stock aversion increases other types of risk: longevity risk (the risk of outliving savings) and preferring guaranteed return of capital but at a rate that doesn't keep up with inflation and makes it likely they will outlive their piles.The biggest mistake people made at the start of the real estate/credit crash was "getting out of equities but never back in." The trick to 401(k) stock investing is "dollar-cost averaging" -- the practice of contributing the same amount of income each month to an account weighted toward the equities market (stocks). When the market goes down their contribution buys more shares than it would when the market is up -- shares bought at bargain prices are worth more when the market goes back up, etc.See the Feb. 6, 2013, Consumer Page at tulsaworld.com/Consumer020613Tulsa World consumer writer Phil Mulkins wants to know which topics interest you. Call 918-699-8888, email your suggestion to phil.mulkins@tulsaworld.com or mail it to Tulsa World Consumer, PO Box 1770, Tulsa, OK 74102-1770.Copyright: ___ (c)2013 Tulsa World (Tulsa, Okla.) Visit Tulsa World (Tulsa, Okla.) at .tulsaworld.com Distributed by MCT Information Services存倉