The diversity in the people we work with is one of the main reasons we enjoy going on site and meeting with participants or talking with them on the phone. For the purpose of this post, we want to focus on those of you asking about retirement and more specifically how to turn your retirement savings into retirement income. We often hear questions like: should I leave my 401(k) with my company? When should I start taking withdrawals? Or, now that I won’t have an income, how much should I live on?

“Do you have a checklist, or a how-to-guide for transitioning my current 401(k) into retirement income?”

Recently we had a conversation with a woman who asked us, “Do you have a checklist, or a how-to-guide for transitioning my current 401(k) into retirement income?” What a great question! This inspired us to assemble a list of steps that addresses her question and other common retirement transition inquiries. So without further ado, here are 5 steps for turning your retirement savings into retirement income!

Step 1: Consolidate your retirement savings into one location

Whether you’re part of a dual income family or have had multiple jobs with multiple 401(k)’s, chances are you have various retirement accounts at numerous investment companies. The truth is, from a planning perspective and from an investment diversification standpoint, having your assets at a single place can provide simplicity and create the foundation to build a financial plan. Often times, this looks like rolling multiple 401(k)’s into an IRA.

Step 2: Identify sources of income

Once your accounts are consolidated, plotting out your different amounts and sources of income is a key next step. Typically, this looks like aggregating social security income, pension income (if applicable), income from retirement accounts, and other income (a part time job, income from a rental property, etc.). Having this information can provide a good baseline of what you are able to live on per year.

Step 3: Identify lifestyle need (how much are you hoping to live on per year?)

Sometimes people have trouble when the word “budgeting” is introduced to the planning process. So rather than creating a budget, create a spending plan (that sounds much more fun right?). By creating a spending plan, this allows you to look at the money you have coming in vs. expenses going out. By finishing this step, you get to see if your inflows are at a surplus or shortage compared to your expenses.

Step 4: Develop appropriate asset allocation and investment strategy

Okay so you’re here. You’ve done the legwork and now it’s time to invest your retirement accounts in a way that can enhance your retirement lifestyle and help you achieve your goals. A few things to consider when developing your allocation:

• Account for market risk by having an appropriate dollar amount in short term investments (money market/CD’s). This will allow you the flexibility of being able to get through the inevitable down market cycles without having to realize losses of long-term investments.

• Account for inflationary risk by having an appropriate dollar amount of your portfolio in long-term growth oriented investments such as US and international stocks. This creates the ability for your accounts to grow above inflation and fund your retirement for the long haul.

• Address dividend and income strategies that can enhance cash flow. By looking at investing in dividend paying stocks, individual bonds, and other cash flow generating investments, you may reduce the burden that your account has to grow each year to meet your spending needs. Having a combination of dividends, interest, and capital appreciation may be an optimal way to generate return over time.

Step 5: Repeat steps 2-4

Has there ever been a 5 step process that doesn’t include the word “repeat”? By continuing to monitor your income and expenses and making sure your asset allocation lines up with your goals, you are ready to start utilizing your portfolio as an income tool.

These steps are a great start when looking at turning your retirement savings into a plan that can generate retirement income. However, there are many other variables when considering using your retirement savings as income (taxes, how it effects social security, required minimum withdrawals, etc.). Remember that we are here to help and support you through this process. If you have any questions or would simply like to have a conversation about retirement please feel free to email or call anytime.

Helpful Links

• Taxes on Social Security Income

• College Savings Options

Have Questions?

Call Us: 503-905-3100 Email Us: 401k@humaninvesting.com

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After watching THE Ohio State Buckeyes take care of business against the Oregon Ducks in the national championship game, as an Oregonian, I was disappointed that Oregon did not have a better showing. However, I was pleased that a better playoff system was in place that provided fans with the two best teams in college football putting it all on the line. A little background for those non-college football fans: 2014-2015 was the initial year of a playoff system that allowed a third party panel to select what they believed to be the four best teams based on analytics and the human eye test (watching the games). The four teams competed in a playoff to determine who the best team in college football was this year. This was much improved from the previous Bowl Championship Series (BCS) system that left college football fans wanting far more clarity, and relied heavily on numerous rankings that utilized very subjective data. The point being, in the BCS system, the college football landscape was looking at information. But maybe it wasn’t the best information.

In a way, this got me to thinking about how retirement plan participants select funds in their 401(k)…. often times using highly subjective data and not the best information. So, in honor of the college football playoff, it’s out with the old and in with the new! Let’s look at three ways to help you make better decisions when selecting an investment in your 401(k) plan:

Short-term performance can be misleading.

While short-term performance history does provide some information regarding the fund you are selecting, what’s more important is how asset classes, US Stocks and US Bonds for example, perform over time and applying that knowledge to the fund you are selecting.

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Understanding how an asset class can perform over a long period of time and the best and worst case scenarios (as shown above) help provide context when selecting an investment. For example, imagine it’s January 1st, 2009 and your retirement account just lost 35% in 2008. All the “noise” was telling you to get out of the market, due to what was happening in the short term. However, if you understood the ups and downs of the stock market and kept your account invested in equities, you benefited by potentially returning a cumulative 105% over the next six years (2009-2014)! All that to say, it’s worth evaluating how markets perform over the long term and not relying on short term information when making investment decisions. Even though we all have heard it a thousand times, it’s always important to note that past performance is no guarantee of future results.

A dollar saved is a dollar earned.

In a recent study, one out of every five 401(k) participants believe they do not pay any 401(k) related fees! There is a very high probability (like 99.9% high) that you are paying fees in your retirement account and it’s definitely worth looking at how much you are paying. If you are utilizing a fund that has an expense ratio of 1.00% or more there is likely an index fund that can accomplish the same goal and reduce your costs. In other words, there are potentially tens of thousands of dollars in savings over the course of your working years if you are able to reduce the costs inside your retirement plan. Need I say more?

Utilize “Set it and Forget it” Investment Options.

Whether your retirement plan offers Target Date Retirement Funds, Constant Risk Models (i.e. Growth, Balanced, Conservative) or both, it’s worth looking into if a “set it and forget it” investment option works for you. For many people, this approach will allow you to be diversified among multiple asset classes, manage your risk, and reduce the time spent managing it yourself.

So whether you want to re-examine how you’re choosing your funds, dig into any hidden fees, or consider consolidating into a “one stop shop” type of investment, we’d be happy to discuss these ideas with you. As a team, we want to make sure you feel well-equipped to make investment decisions, using the best information rather than flipping a coin or using some advice you heard from a friend of a friend (of a friend?). After all, whether you’re a Buckeye, a Duck, or prefer a different mascot, we all want looking at our retirement accounts to feel like winning the National Championship.

Helpful Links

• 2015 Contribution Limits

• Tax Savers Credit

Have Questions?

Call Us: 503-905-3100 Email Us: 401k@humaninvesting.com