How Much Do I Need Annually From My 401(k) During Retirement?

401k plans are retirements plans set up through your employer. Money is deducted from your paycheck and sent to your 401k plan account. That money is then invested. When you retire, you may withdraw funds directly from your 401k plan. But you may want to know how much money you'll need so that you can live comfortably.

Identification

To identify how much money you need, you must add up all of the expenses that you expect to incur annually after you retire. The sum of all of your expenses is the dollar amount you need to withdraw from your 401k plan.

Process

Contact your plan administrator. Request a distribution form. Make a partial distribution from your 401k plan in the amount that you need to withdraw for the year to cover your annual expenses. The administrator will process your request and send you the amount of money indicated on your distribution request form.

Significance

By withdrawing money from your 401k plan, instead of rolling the money over to an IRA and then making withdrawals, you are retaining the benefits of working with the plan administrator you have become accustomed to. You don't need to move your money to another account, so there is less paperwork involved in accessing your retirement funds and setting them up for distribution.

Warning

401k plans generally invest in mutual funds. Because of this, you could end up withdrawing part of your principal dollar amount if your investments perform poorly. This could leave you with a declining retirement income over time. Ultimately, you may run out of money prior to your death.

Consideration

You may want to consider using an insurance company to help you distribute your 401k funds. However, if you do, you'll need to move your 401k plan to an IRA with an insurer. Then, you must convert your savings to annuity payments. Once you do, you will lose access to your savings but will have the option to receive a guaranteed an income for the rest of your life or for a set period of time.

References

  • "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007

About the Author

I am a Registered Financial Consultant with 6 years experience in the financial services industry. I am trained in the financial planning process, with an emphasis in life insurance and annuity contracts. I have written for Demand Studios since 2009.