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The Basics Q&A: Income That Measures Up

Q: Pension income, investments, a 401(k) account, Social Security: What's the smartest way for me to use these sources to meet my retirement needs?

A: With all those resources to work with, you've got a solid foundation for retirement. How best to draw on them depends on your age and lifestyle, as well as all of your anticipated—and unanticipated—expenses. At the same time, there are some points that anyone entering retirement should think about.

One of the first things you'll want to do is figure out which of your funds have required minimum distributions (RMD). Because there can be penalties for missing a deadline, keeping track of all of your RMD deadlines can help you get the most efficient use of your various accounts. Some people find it convenient to roll multiple 401(k) accounts into one IRA so that they only have to worry about one RMD deadline.1

Answered by:


Lorna Sabbia head of Retirement & Personal Wealth Solutions at Bank of America Merrill Lynch

Taxes are another important factor to consider as you create your drawdown strategy. Withdrawals from taxable investment accounts are taxed at capital gains rates, while withdrawals from an IRA or 401(k) may be taxed at higher rates—as regular income. If you exhaust your taxable accounts too soon, and you suddenly find yourself facing unexpected expenses, you'll be forced to take the money out of an account that could cost you more in taxes.

Remember to stay flexible. No matter what plans you have at the outset, life keeps changing, and so will your needs. You may find out that you don't want to travel as much as you thought you did. Or you might decide that you need to help out a family member financially. Your income sources could vary, too. For instance, you could decide that you want to go back to work part-time to bring in extra money. One thing I know for sure is that your answer today will almost certainly be different in five years. I suggest taking the time right now to think through a drawdown strategy that suits your individual needs. And, as your life and the markets change, look for ways to correct your course as needed. For more insights on how to manage your finances as you transition into retirement, read "Tackling Retirement Risks."

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3 Questions to Ask Your Advisor

  1. How can I develop a drawdown strategy designed to cover my basic expenses?
  2. Should I consider other types of investments that might provide additional income?
  3. How might a part-time job impact how my Social Security benefits are taxed?

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1You have choices for what to do with your employer sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to rollover to an IRA or convert to a Roth IRA, rollover an employer sponsored plan from a prior employer to an employer sponsored plan at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.

This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation.


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