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To retire or not to retire?
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April 20, 2000: 11:13 a.m. ET
An IRA or an annuity can offer freedom when considering a long retirement
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NEW YORK (CNNfn) - If you're in your 60s and you lost your job, you might be wondering if you should just retire. But you may be worried about supporting your family for the next 25 years. What should you do with your 401(k)? What options do you have?
In response to a reader's question, Don Boegel, a certified financial planner from Plymouth, Minn., and a member of the Financial Planning Association, discussed the merits of setting up an annuity plan versus rolling your 401(k) into an IRA.
Ask the experts a question
I have been laid off. I am 63 years old and I have about $10,000 cash, $8,000 in company stock and $90,000 in a 401(k) with my company. I have only had access to a 401(k) for the past seven years and in the past two years after a merger the plan investment options have not been very good. (I think this was to encourage company stock purchases).
My wife and I have no debt and are weighing the options of me retiring or finding another full-time job. Our combined Social Security benefits would be about $1,850 per month. She has not worked outside the home. What should I do with my 401(k) so it would provide some monthly income for about 20 years or so? Are annuities a good option, and if so which kind? Do you have some other suggestions? I have worked for 50 years and the prospect of retiring is good, but scary. Any help would be appreciated.
After working 50 years I can imagine retirement does sound good! I know it would to most people with that length of tenure.
Without knowing what kind of monthly income you need, it is difficult to determine what specifically you should do with your 401(k) account. However, I can cover some of the normal distribution options 401(k) plans typically have and also address your question of annuities. I'm going to assume that you are 100 percent vested in your 401(k) plan since you have participated for seven years, so any employer contributions would also be yours.
Upon retirement, individuals normally have three choices regarding their 401(k) accounts: They can begin withdrawing; They can roll it over into an IRA; Or, they may simply leave it there to continue growing. If they want income, one option would be annuitization, and the other would be taking periodic withdrawals (i.e. $400 per month).
Regardless of the method chosen, in most cases, 100 percent of what's withdrawn is taxable in the year taken. And once you've retired you must begin making withdrawals by age 70-1/2. So, how does one make these choices? Very carefully...and after looking at several options.
In your case, it sounds like you aren't real happy with the investment options currently available inside your 401(k) plan, so moving your 401(k) to an IRA account may be a better choice. Rolling your account over to an IRA provides you with the following benefits:
· You control the investments
· Your account remains tax deferred
· For income, you can annuitize or make periodic withdrawals
· When you die, all remaining assets (unless annuitized) go to a named beneficiary
With an IRA, you can choose the investments and I think maintaining investment flexibility is very important through retirement, especially for those individuals retiring early (ages 55 to 62), and you are only 63.
When generating income, one choice you have is annuitization. Taking an annuity payout can be a good choice if the income guarantee is well above your projected needs. However, make sure you consider inflation when you are projecting your retirement expenses, because 20 years from today you'll still need to eat and sleep.
Typically, with annuitization you exchange a lump sum balance ($90,000 or some portion) for a monthly benefit guaranteed for a period of time. For example, you can make it for your lifetime, or for 20 years. The longer the time period, the lower the monthly payment. Once you set the time, you can't change it. Your human resource department (or 401(k) plan provider) usually can provide you with these figures.
In addition, you can compare those figures with other annuities offered by most major insurance companies. If you decide to take an annuity payout with a company outside your 401(k), simply roll your account balance over directly to them as an IRA.
Considering your 401(k) represents such a large portion of your available retirement income, I'd be very reluctant to annuitize this unless I was certain my future expenses weren't going to exceed my income.
Rather, I'd recommend keeping some (or all) of it in an IRA where I could control the disbursements (or not take any if I don't need to). The annuity payments will come regularly whether you need them or not, so if you do decide to take a part-time job you may have more income tax liability than you planned on.
In summary, I don't know what your (income) needs are so it's difficult to advise you about what to do. I wish you well, but before you retire, tell the younger employees not participating in this 401(k) what they are missing! 
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