December 21, 2013 by Jean
Most of the financial advice about retirement is about how to save for retirement; but the transition to retirement is also a transition from saving retirement funds to spending retirement funds. And information about how to make that transition is surprisingly difficult to find.
Right now, I’m still in saving mode, continuing to contribute to my 403(b), which is the non-profit equivalent of a 401(k), and to a Roth IRA while I am still earning income. I’m also continuing to put money away in short-term savings that will fund my first three years of retirement living while my retirement investments continue to grow.
My retirement funds are with TIAA-CREF, a financial services company that handles the retirement funds for many academic institutions. I’ve looked at TIAA-CREF’s publications about how to withdraw retirement savings, but I’ve found their wide range of options a bit intimidating. Because I won’t begin to draw on my retirement funds until 2017, I have some time to figure this out; but I have been feeling somewhat anxious about it. (See Transitioning to Retirement: Will I Have Enough Money?)
So recently I made an appointment to sit down with a TIAA-CREF consultant. Along with its retirement funds, TIAA-CREF provides quite a bit of free financial advice; the company’s consultants visit my campus several times a year for individual appointments.
My appointment with the retirement fund advisor did a lot to allay my anxieties. Since I have a good sense of how much it costs me to live and have already worked up a fairly detailed budget for retirement living, we used that budget as a starting point. Given all the complex financial language that usually surrounds this topic, it turned out that the financial consultant’s advice was remarkable straightforward. He first asked me when I planned to begin taking Social Security benefits (at age 70) and whether or not I had estimated how much those benefits would be (I had). He then suggested that I annuitize enough of my TIAA-CREF retirement funds so that, added to my Social Security benefits, it would equal my monthly budget. Since he had information about my TIAA-CREF retirement savings at hand, he was able to show me how much of those funds (slightly less than half) I would need to annuitize to meet that budget. This leaves the other half of my retirement savings to continue to grow and act as a hedge against inflation and special needs. TIAA-CREF’s options for withdrawing funds include three different annuity options. I plan to choose something called a “graduated” annuity. This is not a variable annuity; it has a guaranteed payout, but it is designed to pay out somewhat less in the early years and more in the later years (again, a way of planning for inflation).
I only spent about 30 minutes with the TIAA-CREF advisor, but it was a very fruitful 30 minutes and left me feeling more secure about my transition from retirement savings to retirement spending.
Monthly Social Security Benefit + Monthly annuity payout = Monthly budget for retirement living. Not so complicated, after all.