Now Its Finally Time to Start Spending My Retirement Nest Egg

Not so fast! People work long and hard for years on their retirement plans. Paying smart attention to the plans doesnt stop when its time to enjoy the fruits of the labor and sacrifice. When it comes time for you to begin using your funds, youll need to make sure you follow some rules in order to avoid unnecessary expenses. Some questions follow that will help you remember wise ways to manage your money as well as avoid pitfalls that could cost you.

Keeping in mind that the primary purpose of tax-sheltered plans is to provide for your retirement, there are regulations in place to discourage early withdrawals, which presumably are intended for uses other than funding your retirement. That discouragement comes in the form of paying penalties and some taxes for which you would not otherwise be liable. However, there are some withdrawals allowed that wouldnt require you to pay penalties, as long as certain qualifications are satisfied. What are some of these penalty-free withdrawals? Check all that apply.

Wedding

College expenses

Early retirement

Vacation

Home renovation

Account loan

It can be costly to spend your funds before the retirement rules allow if, for any reason, that spending doesnt fall into the narrow range of penalty-free early withdrawals. The farther away you are from retirement age, the cost that will most likely have the greatest negative impact is the .

Alex arranged for a lump-sum distribution from his employer-sponsored plan of $350,000. The entire amount was transferred to another account. What arrangement would not allow for this transfer?

Direct deposit into Alexs spouses checking account

Trustee-to-trustee rollover

Rollover IRA

Ali is finally ready to retire with a nest egg of $500,000. He wants his money to last 25 years and, taking inflation into consideration, expects the balance in his nest egg to earn 3% per year. Use the following interest table to compute how much Ali could withdraw per year before his money ran out. Round your answer to the nearest dollar.

Interest Factors Present Value of an Annuity

Years	2%	3%	4%	5%
15	12.8493	11.9379	11.1184	10.3797
16	13.5777	12.5611	11.6523	10.8378
17	14.2919	13.1661	12.1657	11.2741
18	14.9920	13.7535	12.6593	11.6896
19	15.6785	14.3238	13.1339	12.0853
20	16.3514	14.8775	13.5903	12.4622
21	17.0112	15.4150	14.0292	12.8212
22	17.6580	15.9369	14.4511	13.1630
23	18.2922	16.4436	14.8568	13.4886
24	18.9139	16.9355	15.2470	13.7986
25	19.5235	17.4131	15.6221	14.0939
26	20.1210	17.8768	15.9828	14.3752
27	20.7069	18.3270	16.3296	14.6430
28	21.2813	18.7641	16.6631	14.8981
29	21.8444	19.1885	16.9837	15.1411
30	22.3965	19.6004	17.2920	15.3725
40	27.3555	23.1148	19.7928	17.1591

Based on GARMAN/FORGUE. Personal Finance, 11E. 2012 South-Western, a part of Cengage Learning, Inc.

Ali might want to have more money during his retirement years. What are some good options he should explore? Check all that apply.

Buy an annuity

Try to find a way to earn more interest on his nest egg balance

Get a part-time job

Withdraw less per year than the preceding calculation indicates