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Other Articles
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Pensions
What To Do With That Lump-Sum Distribution?
By Brian Grodman
Financial Advisor, Grodman Financial Group, LLC
For many Americans, a comfortable retirement is the reward for years of long work hours, bumper-to-bumper traffic and endless staff meetings. Finally they have more time to travel, play golf, visit with the grandchildren, or just do anything they like—they’re retired!! However, with these new opportunities come additional financial challenges. According to the
Center for Health Statistics, an individual retiring today at age 65 can
expect to spend 15 to 20 years in retirement. Therefore, it is important
to plan wisely so that during retirement you don’t outlive your retirement
income.
Retirement income is mainly derived from three sources: personal
savings, social security and employer-sponsored qualified retirement plans. Unlike our parents and grandparents before us, many of us no longer spend most of our lives working for the same employer. In fact, according to the Department of Labor, over a 40-year career the average
American will change jobs 11 times. With many companies today offering a 401(k) plan which provides 100 percent immediate vesting of employee contributions, many of these “transient” employees are receiving retirement benefits in the form of a lump-sum distribution on average every 3.6 years.
Determining what to do with a lump-sum distribution from a qualified
retirement plan is among the most important financial decisions one can
make, as it will clearly have an impact on future retirement income.
Options include: maintaining the tax-deferred status of this money by
rolling it over into an IRA, rolling it into the new employer’s plan (if this
is allowed by the new employer), keeping it with the current employer
(if allowed), or using the distribution for current expenses, thus incurring
potentially significant tax consequences, plus the loss of tax-deferred
growth and any future retirement income.
When faced with the myriad decisions surrounding a lump sum distribution
from an employer-sponsored retirement plan, it may be best to
rely on the advice of a financial professional. He or she is trained to help
you create a plan that makes the most out of what may clearly be an
important source of your retirement income.
Advisor is an independent financial planner based in Manchester, NH
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