Employer Sponsored Plans are Designed for Accumulation
Employer Retirement Plans are wonderful vehicles to save for retirement, especially if your employer is providing an employer match to enhance your savings. Few, however, are appropriate for the distribution phase of your life – when you are retired. Market downturns during retirement don’t really hurt you – long-term – if you can wait until a recovery before you retire. Downturns can even enhance your savings because during downturns you are buying at reduced prices – the market is on sale.
Things Change in Retirement
Once you begin distributions, market downturns can cause serious long-term consequences. If you experience a 50% market pullback, you will need a 100% return to get back to even. However, this will be difficult to achieve because, obviously, the money you distributed will have a greater effect when the market is lower. Another way to look at this is a 4% beginning distribution rate becomes an 8% distribution rate when the market has fallen.
Employer Sponsored Plans Differ from IRAs
It is commonly understood that distributions from IRAs are subject to a 10% penalty if taken before age 59 ½. Distributions from Employer Sponsored Plans, assuming certain conditions are met, can be taken at age 55 with no penalty. For some people distributions can begin at age 50 without a penalty.
Required Minimum Distribution Rules are Also Different
There is no RMD requirement from your current employer’s plan. This does not eliminate the need to take IRA RMDs or employer plan RMDs from previous employer plans. You can talk with a Tax Acuity Approved Advisor™ to get a complete understanding of the issues by going to our contact page.