Iowa Insurance Division Iowa State University Extension Investor Protection Trust


Investments at the time of retirement

Whether you have a retirement plan at work, an IRA, or separate investments earmarked for retirement you will have decisions to make as “R” day approaches, says Pat Swanson, CFP® and families specialist with Iowa State University (ISU) Extension’s Invest Wisely Project (

If you have a pension plan, you will have choices on how you wish to receive the money that has accumulated. Any plan will have its own rules for payout. “When preparing to retire, contact the benefits office where you work at least six months before, to understand your options,” Swanson suggests. “It is important not to be hasty, because once a payout decision is made it cannot be changed.”

To select a payout option that is right for you, Swanson says you need to consider your age and health, investment skills, need for security, tax situation, and the company’s economic health.

Some individuals choose to take a lump sum and invest the money themselves. The advantage of this option is getting everything out of your plan even if you die early in retirement. However, this decision has tax consequences because income tax is paid on the entire lump sum in a single tax year.

Another option is to roll over the amount into a traditional Individual Retirement Account (IRA). You could then convert the traditional IRA to a Roth IRA. The entire amount transferred to the Roth would be taxed but the withdrawals from that point on would not be taxed and there would be no mandatory withdrawal age.

Employer pension plans also may provide the option of receiving the payout as a lifetime annuity, i.e., a regular monthly payment for your lifetime. With a 401(k) plan this annuity amount is based on your life expectancy and the amount in your retirement account at the time of your first withdrawal.

Another option is a joint and survivor annuity where annuity payments are made over your lifetime and then upon your death over the lifetime of a designated survivor. The major advantage of a lifetime annuity is knowing you won’t outlive your retirement nest egg. It also is important to consider the impact of inflation when selecting an annuity. Unless it is indexed for inflation, a fixed annuity will buy less as time goes by.

If you have a traditional IRA you may take as much or as little as you wish between the ages of 59-1/2 and 70-1/2. If your traditional IRA is a deductible IRA, income tax is due on both the earnings and original contributions that are withdrawn but if it is a nondeductible IRA, tax is due only on the earnings when withdrawn. You must begin taking a minimum required distribution from your traditional IRA by age 70-1/2. The minimum amount is based on your life expectancy. However, a Roth IRA, unlike a traditional IRA, does not require a minimum distribution during the owner’s lifetime.

If you also have an investment portfolio that has been earmarked for retirement, your investing strategy should change as retirement nears and be not quite so aggressive. However, don’t go overboard and be too conservative. “While you may be tempted to invest very conservatively, it is wise to invest at least some of the portfolio with growth in mind. If you invest too conservatively, the return on your investments may not keep up with inflation” Swanson warns.


The ISU Extension Invest Wisely Project provides a series of newspaper, radio, and web resources for investors.  It is funded by a grant from the Investor Protection Trust (IPT).  The IPT is a nonprofit organization devoted to investor education.  Since 1993 the IPT has worked with the States to provide the independent, objective investor education needed by all Americans to make informed investment decisions.




Updated February 25, 2008