I Learn by Going Where I Have to Go: The Decumulation Phase

One of my favorite poems by Theodore Roethke says, "I learn by going where I have to go."
I would say that nowhere in my life has this ever proven more true than in this transition from worklife to retirement living.

Here I share some of the most important things I've learned about making that transition with finances intact.

1.  When you leave a company and you're 55 or over, you may be able to take money from your 401(k) without the 10% penalty you'd incur with IRA withdrawals. That money can come in handy if you are out of a job and need some funds to tide you over until your next assignment. Of course, check with your own plan for details.

2.  Your human resources department may not be the best source of information on how to make the benefits transition to being out of work/retired.

3.  You can use your retirement funds, if needed, to pay for medical insurance premiums if you've been unemployed for 12 weeks or more. (Or is it more than 12 weeks?) You can do this in the year(s) you are unemployed and the year after. See rule72t.net for a great discussion of this and other matters.

4.  A Rule 72(t) withdrawal for SEPPs (substantially equal periodic payments) will not let you take out 1/5 of your money over that 60-month period. Instead, you must use a specially determined percentage rate (or below that rate), one of 3 possible withdrawals modes, and not even all IRS employees know anything about this rule!

5.  Separating IRAs into deductible and non-deductible doesn't seem to make a lot of difference when it comes to withdrawals being taxable or non-taxable.  Even if you take already-taxed money out of an IRA, the amounts of all your accounts are aggregated and you get only a pro-rated amount disallowed from the taxable amount.

6.  Your marginal tax rate matters when planning IRA withdrawals.

7. Converting some of your funds to a Roth IRA may be a good way to move some of your money around if  you need to max out your own marginal tax rate ceiling.

8.  If you have enough money to even think about retirement planning, your Social Security funds will be taxed. Plan for that when figuring your decumulation cash flow.

9.  Your broker is a salesperson.

10.  Don't be an April Fool -- or a fool in any other month!   If you don't choose to learn this stuff yourself, educate yourself at least enough to ask educated questions of whoever is handling your money.