Create an Income Stream
Taking initial withdrawals of 4% or considering annuities are often recommended to retirees.
The key to a successful retirement-investment plan lies not only in choosing the right investments but also in choosing the right place to keep them. Over the years, Congress has created numerous ways for retirement investors to shelter their dollars during their working years, allowing their savings to grow unfettered by taxes until withdrawn in retirement.
In recent years, that save-now-tax-later model has been turned on its head with the Roth IRA and Roth 401(k) options, which offer no upfront tax break but provide tax-free income in retirement. Now you can choose which account or combination of accounts best suits your retirement goals.
In addition to IRAs for individual investors, there are a variety of workplace-based accounts: 401(k) plans, used by private employers; 403(b) plans, used by schools, hospitals and other nonprofit organizations; 457 plans, used by state and local governments; and the Thrift Savings Plan, for federal workers. Self-employed individuals can put away more than twice as much as the average employee each year using special retirement accounts including Simplified Employee Pensions and solo 401(k) plans.
Collectively, these workplace-based retirement accounts are referred to as “defined contribution” plans.
Employees are responsible for contributing to their own accounts (sometimes supplemented by employer contributions) and deciding how to invest the money.
With traditional pension plans, employers shoulder the burden for funding and investing pension funds on behalf of employees. Eligible retirees can count on a regular monthly pension benefit or a lump-sum payout from these defined-benefit plans.