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Drawing Down Assets Is a Tough Balancing Act

BOSTON ( TheStreet) -- The focus for retirement plans has always been on accumulation, building your lifetime of invested assets into a pool large enough to sustain your lifestyle once you stop working.

But that's only half the battle. Increasingly, investors and their advisers are paying as much attention to the flip side of the equation: decumulation, or how and when those savings are optimally drawn down.
With roughly 77 million baby boomers entering retirement, much old, standard advice is being challenged by growing human longevity and retirees' risk of outliving their money.

In the not-so-distant past, that second phase of retirement planning was viewed rather simplistically -- a one-size-fits-all approach being to draw down roughly 4% of your savings during each year of retirement and supplement those withdrawals with Social Security stipends.

Now, with roughly 77 million baby boomers entering retirement, that advice is being challenged by longevity (and with it the risk of outliving your money) and the financial burdens of the "sandwich generation," in which retirees find themselves retiring with sizable debt and obligations to younger and older family members. Stock market volatility, a low interest rate environment, the uncertainty of future taxes, inflation and health care costs complicate the equation even more.

The following are three things to think about as you consider a plan of attack for finally spending the money you worked so hard to save:

Know the rules
There are some ground rules courtesy of the IRS to abide by carefully. Failing to follow the letter of the law can cost you big time.

Just how much you will need to withdraw -- the Minimum Required Distribution -- is a confusing calculation based on an actuarial assumption of lifespan. The IRS has worksheets, and there are a variety of online calculators to help determine the amount. Your plan sponsor and administrator, as well as your financial adviser if you have one, can crunch the numbers as well.

If you have a 401(k) plan or IRA, the IRS requires that retirees take the first distribution by April 1 of the year after reaching age 70.5. In subsequent years, annual distributions are required by Dec. 31. Failing to do so will mean having to surrender a 50% excise tax on the amount you were supposed to have withdrawn.
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