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Retirement Planning

Income Generation

A New Horizon. Once you've reached retirement, it's time for all your hard work to start paying off. But to help your nest egg last as long as you do, it's important to stay proactive. Consider when you want to begin taking distributions, how much you should take each year, and how taxes may affect your assets.

In other words, your investing journey isn't over. It has shifted into a new phase.

Timing Is Everything

Don't Cash Out Too Early1

Chart assumes a $100,000 withdrawal before age 59½

Early withdrawal hypothetical infographic.

1 This chart is purely hypothetical and for illustrative purposes only. The illustration shown here assumes a participant under age 59½ in a 24% federal income tax bracket. Tax rates are subject to change. Your particular situation may be different. State taxes, which may also be due, are not included in the above example and, if applicable, would further reduce the "amount you keep." For questions about a specific situation, please consult a qualified advisor.

How you'll be taxed on retirement income depends largely on when you decide to retire. If you take income too early or too late, you may trigger additional tax consequences. If your employer-sponsored retirement plan is your largest source of retirement income, it may be a good idea to step back, take a breath, and consider the big picture before you decide the timing and amount of your distributions.

Watch for Speed Traps

  • Distributions are taxed as ordinary income
  • 20% mandatory withholding for federal taxes
  • 10% additional tax for distributions before age 59½ (or age 55 if separation from service occurs after age 55)
  • Loss of tax-deferred growth potential of your assets
  • Less money accumulated for retirement

How you choose to take your distributions can also determine how much you may have to pay in federal income tax. Choosing a lump sum can have a negative tax impact, and taking too much in systematic withdrawals may deplete your account too quickly. Whether you're planning a long retirement or you decide to delay your retirement, it's important to consider how the withdrawal rate you choose can affect your retirement income in the long run. The chart below illustrates what a difference 1% can make in how long your money may last.

How Withdrawal Rates Could Affect Your Retirement Income2

$500,000 portfolio starting withdrawals in 1973. This start date selected by Morningstar shows how investing before a market downturn affects a portfolio with different withdrawal rates.

Hypothetical on how withdrawal rates could affect your retirement income.

2This chart illustrates a hypothetical 50% stock/50% bond portfolio and the effect various inflation-adjusted withdrawal rates have on the end value of the portfolio over a long payout period. The hypothetical portfolio has an initial starting value of $500,000. It assumes that a person retires on December 31, 1972, and withdraws an inflation-adjusted percentage of the initial portfolio wealth ($500,000) each year beginning in 1973. As illustrated, the higher the withdrawal rate, the greater the chance of potential shortfall. The lower the rate, the less likely you are to outlive your portfolio. Therefore, early retirees who anticipate long payout periods may want to consider assuming lower withdrawal rates. Diversification does not eliminate the risk of investment losses. Government bonds are guaranteed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes.

About the data

Stocks in this example are represented by the Standard & Poor's 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. Bonds are represented by the five-year U.S. government bond and inflation by the Consumer Price Index. An investment cannot be made directly in an index. Each monthly withdrawal is adjusted for inflation. Each portfolio is rebalanced monthly. Assumes reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. The scenarios highlighted in this chart are the average result of many simulated scenarios. Actual results will vary and may be better or worse than the scenarios presented. Source: Ibbotson Presentation Materials, ©Morningstar, Inc. All rights reserved. Used with permission.

Don't Forget Taxes

In retirement, just because your paycheck stops doesn't mean taxes do. As you start your distribution phase, it's important to consider how your distributions will be taxed.

How Can Your Distributions Affect Your Income Tax Bracket?

Chart assumes income of $100,000 married filing jointly.

Hypothetical on how distributions affect your tax bracket infographic.

Source: Tax Foundation, 2018 Tax Brackets, January 2018.

Remember - Your Social Security Income Can Be Taxed, Too.
Hypothetical social security income can be taxed chart.

Source: Social Security Administration,, "Benefits Planner: Income Taxes and Your Social Security Benefits," as of December 26, 2017.

For more information on how taxes can affect your income, even in retirement, we've got a handy guide to Tax Deferral. And remember, market volatility is always an important consideration when deciding when to retire and how to handle income distributions. Our investor's guides to Asset Allocation and Portfolio Rebalancing can help keep you on track.

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Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other important information. Please contact your representative or the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.

Tax deferral offers no additional value if an annuity is used to fund a qualified plan, such as a 401(k) or IRA, and may be found at a lower cost in other investment products. It also may not be available if the annuity is owned by a "non-natural person" such as a corporation or certain types of trusts.

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