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What is an efficient way to get out of your money out of retirement plans? You're working hard and saving hard for this illusive concept of retirement. Once you arrive ... then what are you going to do with these dollars?

If you are retired, have you ever been taught how to spend and enjoy your retirement to the fullest? Have you considered what would happen if you woke up one day and your account values had dropped by 50%? How would that make you feel? How would that affect your future? Those are some of the tough questions we try to address as we meet with people.

There are three main strategies for getting money out of a retirement plan after a person reaches 59½ and is retired. Let's look at the primary options.

The first option is a very traditional approach. Most financial advisors are going to advise the retiree to "live off the earnings." Of course, this makes logical sense to most people. No one wants to "run out of money." That would be a huge problem. It is one of the biggest fears of retirees.

But, the idea of living off of the earnings does not really address the three main problems a retiree may face with this plan.

The first problem is the unpredictability of the market. There is no way a portfolio of stocks and bonds will yield a consistent return-say hypothetically, 7%-each and every year. There are going to be some up years and some down years. Drawing out income during a declining market can lead to an accelerated loss of principle. A fixed interest rate account carries with it "interest-rate" risk-will interest rates be as high when the current rate matures?

The second major problem that may be facing our retiree is the possibility of tax law changes. This makes planning unpredictable. An increase in income tax rates or a change in the taxation of social security income may derail a retirement lifestyle.

The third major issue with the earnings approach is the impact of inflation. Inflation quietly decays purchasing power over long periods of time. Although preserving principle and living off of earnings is a typical strategy, it may not be the best.

The second option for a retiree is take retirement money out in a lump sum. This would be an obvious nightmare if all of the money is taxable. It may force a person into a higher tax bracket. Most people don't really enjoy the wealth created in taxable retirement accounts because they don't want to pay the taxes accompanying a significant withdrawal.

The third option is to take out earnings and principle. We call this a "spend-down." The plan would be to liquidate the account over a 10, 20, or 30-year period. Producing more income than just the earnings option, this strategy does a better job of dealing with inflation.

It may also be a better way of dealing with a loss in the market. If the retiree had experienced a market decline just prior to retirement, less principal and a spend-down strategy may produce more income than the earnings option. For example and for illustrative purposes, $1,000,000 earning 5% is $50,000 per year. The same income, $50,000 per year, produced from a 20-year spend-down strategy would require only $623,111 of principle earning 5%.

Similarly, a spend-down strategy may create an equal or greater amount of income with even a lower risk level. That same $1,000,000 placed in a 3% savings account, would produce income of $67,216 per year during a 20-year spend-down.

The obvious problem with the spend-down strategy is ... what happens if the retiree outlives the strategy? Suppose the spend-down lasts for 20 years and the retiree lives longer?

This is where a macro-economic approach is needed. Only when you look at the big picture, considering all assets and all options, will a suitable strategy be developed. Our Economic Model helps us design retirement income strategies that allow retirees to enjoy their wealth, without the fear of "running out."

If you don't have an exit strategy in place for your retirement plan, talk to one of our advisors. Working with you, one of our advisors can help you engineer a strategy to help maximize your retirement income.

**Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

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