If you are planning on retiring this year, then it is important to decide what you are going to do with your 401k account. It's a big decision since this will be the money which you use to survive. It will help supplement your Social Security income, which might not be enough to cover your bills. However, you need to choose what to do with your 401k funds. Here are three ideas to consider. You can discuss each choice with your financial planner.
Keep Your 401k But Change Investment Allocations
You might be very comfortable with the company that manages your 401k investments. If so, you could choose to keep your 401k setup with the same company. What you might want to do is change how your investments are allocated. Many people allocate their 401k investments to risky holdings while they are still generating income. These risky investments might include small gap funds and other growth stocks. However, once you retire, you might want to reallocate much of the money into bonds and blue chip stocks.
Roll Over Into An IRA For New Investing Options
If you feel that your investing options are limited in your current 401k plan, you might want to speak to a financial consultant about rolling over your 401k into an IRA. You will be able to choose from among a much broader set of investing options. Perhaps your company set up the 401k with a company that didn't offer REIT's, Emerging Market Mutual funds, muni bond funds, or something else you would like to invest in. The only way to be able to invest in these types of investments is to rollover your 401k into an IRA and then use the funds to purchase these new equities and investment.
The roll over process is something you need guidance on. For one thing, there is a time issue. Once you withdraw the funds from your 401k, you need to roll it over on a timely basis. Otherwise, you can face monetary penalties. You also need help determining the type of IRA (traditional or Roth).
Purchase An Annuity For Stable Income
If you find that stocks are a bit too risky for your taste, and even bonds are not to your liking, then you might be interested in an annuity. These are fixed income investments that you purchase from an insurer. These financial instruments need to be chosen with the help from a financial planner. They are complicated investments. Unlike a stock or bond, you don't sell them or receive dividends. What happens is you purchase an annuity with a lump sum of money, and then you receive payments from the company. You will need help determining whether the specific type of annuity is right for you (life, deterred, etc...).