You’ve spent years building your retirement nest egg: tracking your investments, adjusting your allocations and putting aside a percentage of your paycheck every month to finance a comfortable retirement. Who would have thought that would be the easy part!

As you approach retirement, you need to start thinking about how you will manage your money once you’ve actually retired. It can be just as important as how much you’ve saved.

A good way to start may be by creating a retirement income strategy: a personalized road map that involves investing your savings today in ways designed to help generate the income you’ll need to live in retirement.  Before making any tax-related investment/insurance decisions, please consult a tax adviser or attorney.

Your withdrawal rate

Your withdrawal rate can be the most important piece of your post-retirement financial plan. Before you can decide which accounts to tap first, you’ll need to crunch the numbers to determine how much you can safely withdraw without running the risk of outliving your savings. Ideally, your withdrawal rate would leave you with enough income to cover your living expenses until age 100 plus. Many are living longer and incurring greater medical costs than ever before.

You may want to take into account your age, life expectancy, living expenses and the rate of return of your investments. For those who wait to retire until age 65 with adequate savings set aside and generally healthy, one approach may be to draw down a percentage of your assets that is not greater than two-thirds of your overall annual rate of return each year, adjusting that rate annually to account for inflation. For example, assuming a conservative 6% annual return on your overall portfolio and a generally stable economy, with this strategy you could potentially withdraw 4% of the value of your portfolio for 30 years, allowing you to spend only your earnings, leaving your principal untouched. This example is hypothetical and does not reflect any specific product. Investments are subject to investment risk including the possible loss of principal. The investment return and principal value of the security will fluctuate so that when redeemed, it may be worth more or less than the original investment.

Your asset buckets

The next step to consider is to categorize your assets into three distinct buckets.

#1 Your taxable bucket. Investments held outside of your retirement plan accounts. Consider tapping these investments first since capital gain tax rates may be more favorable than the ordinary income tax rate you will pay when withdrawing from your tax-deferred accounts, like your CalPERS Supplemental Income 457 Plan account.

#2 Your tax-favored account bucket. These are your contributions to the CalPERS Supplemental Income 457 Plan and other retirement plan accounts and IRAs. For many, it may be best to leave these funds untouched until Bucket #1 is depleted, allowing them to continue accumulating tax-deferred for as long as possible. Of course, you can’t let your tax-deferred accounts ride forever. You must be mindful of the IRS rules for Required Minimum Distributions that must begin by April 1 of the year after you reach age 70, unless you are actively employed.

#3 Your tax-free account bucket. If you have Roth 457(b) accounts under previous employers’ retirement plans or Roth IRAs at financial institutions, consider contacting the account providers about the rules for tapping these types of accounts. Your tax adviser is another source of information to assist you with planning.

Keep taxes in mind

You may want to be aware of current income tax rates, assessing whether you should consider taking a blended approach to withdrawing your money from your tax-deferred and tax-free buckets. And if you think tax rates are going to be higher in the future, you might want to consider taking some of your taxable distributions from your tax-deferred accounts before rates go up. This information does not serve, either directly or indirectly, as legal, financial or tax advice and you should always consult a qualified professional legal, financial and/or tax advisor when making decisions relative to your individual tax situation. Neither CalPERS nor Voya Financial^® offers tax or legal advice.

Consider Social Security

If you have paid into Social Security, you are eligible for benefits. Keep in mind:

• The earlier you collect, the less you will receive each month.
• The longer you wait to collect, the higher your monthly benefit may be.
• Your benefits may be adjusted if you worked for a governmental employer where your wages were not covered by Social Security.

If you continue to work during retirement, you must consider your income to determine whether it is wise to claim Social Security or wait until later. If you have substantial outside income (from wages, self-employment, interest or dividends), you may have to pay federal income tax on your Social Security benefits.

As you map out your retirement income strategy, make sure you take the time to understand the rules, penalties and tax liabilities associated with each of your accounts. And don’t forget, the trick to making your nest egg last may not always be the size of your account, but how well you manage what you’ve got.

As you get closer to retirement and after you retire, experienced local representatives are available to help you by telephone or in person. To schedule a personal phone review, go to www.calpers457.checkappointments.com. You’ll receive a confirmation and an appointment reminder by email. Or call toll free at 888-713-8244 weekdays 8 a.m. – 5 p.m. (Pacific Time).

Plan administration services provided by Voya Institutional Plan Services, LLC. Information from registered Plan Service Representatives is for educational purposes only and is not legal, tax or investment advice. Local Plan Service Representatives are registered representatives of Voya Financial Advisors, Inc. (member SIPC).

This newsletter was prepared by Voya Financial^®. Articles by Voya are not intended to provide tax or investment advice. Any opinions, advice, statements, services, offers or other information or content expressed or made available herein has not been independently verified by the California Public Employees’ Retirement System (CalPERS), nor does it necessarily state or reflect the views of CalPERS. Reference herein to any specific commercial products, processor service by trade name, trademark, manufacturer or otherwise does not necessarily constitute or imply its endorsement, recommendation or favoring by CalPERS. © 2017 Voya Services Company. All rights reserved.

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