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Balancing act: Reader ponders frequency of retirement distribution

There

was a time, not so very long ago, when it was easy to believe the stock

market would keep going up forever. There might be a down day every now

and then, we thought, but overall, the trend seemed relentlessly

positive.

Yes, we were foolish, but when you're young and irrationally exuberant, you don't know any better!

We're

all a bit older and less exuberant now, and that leads us to today's

question, from a reader named John. John will turn 70½ this year and

start taking distributions from his retirement accounts.

\"Conventional

wisdom seems to favor taking payments annually, in order for funds to

continue earning as long as possible,\" he wrote. \"That makes sense in a

bull market.

\"Given the market's

gyrations of late, however, it seems that it might be wise to take

distributions monthly so that one is not caught with a large

distribution at a time when the market is down. ... Any thoughts?\"

Yes,

John, I do have some thoughts to share, courtesy of Jeff Salisbury,

principal at Beacon Financial Planning in Cache, Davis and Salt Lake

counties.

And to make a long answer short, Jeff says you're correct in your conclusions.

Say

you took your distribution once annually, and you happened to choose

last Thursday as the day to get your money. The market tanked that day,

and you would have suffered the consequences.

\"By

spreading it out over 12 different distributions, you're spreading out

the risk that you could have a down day when you're taking it out,\"

Jeff says. \"What's the likelihood, if you have 12 days during the year

that you're taking your money out, ... that all 12 will be down days?\"

Companies'

rules on distributions differ, he says, and investors should pay

attention to the particulars of their accounts. For example, if you

must pay a transaction cost every time you receive a distribution, take

that into account when deciding how often to get your money.

\"But

with a lot of mutual fund accounts, you can take distributions, and

there are no transaction costs,\" Jeff says. \"It kind of depends on

where your account is being held. Most custodians are pretty flexible

these days.\"

He says John's question

reminded him of recent research regarding portfolios that are in

\"distribution mode,\" meaning those from which people are withdrawing

money. That research shows there is luck involved with how well people

do during the time they are taking distributions.

For example, he says, assume John has saved a nest egg of $1 million.

\"If

John retired in a year when the next five years (of the market) are

going to be down, he's going to get a very different outcome down the

road than if he retires in a year when the next five years are up,\"

Jeff says.

Online \"retirement

calculators\" that help people determine how much money they need to

save for their golden years are common, Jeff says. But he says people

must remember that such calculators lose accuracy when the stock market

hits a long downward trend.

\"The

retirement planning and distribution mode has to take into account the

reality of these kinds of decades that we've just gone through,\" he

says.

I hope this helps solidify your decision, John. Drop me a line to let me know how everything turns out.


If you have personal finance comments or questions, send them to gkratz@desnews.com or to the Deseret News, P.O. Box 1257, Salt Lake City, UT 84110.