What are you planning to do with your 401k plan when you retire?

At retirement, many people suddenly find themselves holding more money than they ever have before.  It may be tempting to splash your 401k pot on luxuries but the reality is that you have to work out how it can last you through your retirement.

And, you also have to work out what distributions you can take, where you should invest your money and how much you’ll need to live on.  It’s a tough job, and so here are three things you should do with your 401k plan when you retire.

Start planning early

Ted Benna, the creator of the first 401(k) plan says: You want to start thinking about retirement six months to a year before you do it. There are economic preparations you need to do.

Six months to a year before your retirement you should look at your portfolio and work out whether it is going to last you through your retirement.  401k plans will often make the most money in the last few years before retirement so be very careful if you want to retire early as this could limit some of the gains you make.  And, of course, you don’t want to run out of money and have to rejoin the work force at a later age.

Work out where your investments will go

When you retire, you also have to decide where your money should be invested. For example, if your 401k plan has mostly been invested in company stock you may want to consider pulling it out and investing in mutual funds instead.

The company overseeing your 401(k) plan will often encourage you to keep your money in-house. They will offer you investment options in an attempt to keep your cash and benefit from the management fees.

If the company offers a good range of investments and funds, excellent performance and low charges then it may well be worth staying put.  However, with lots of alternatives it is always worth shopping around to see if there is a better home for your money.

Get professional help

If you have a decent sum of your money in your 401k plan – many people have in excess of $500,000 – it may pay to seek professional advice.

Michelle Anderson, vice president of personal investment counselors with First Union Brokerage Services Inc, says: “Anyone with that net worth needs a full-rounded financial planner, to talk about insurance, taxes, the direction to go with retirement accounts.”

If you are newly retired you will have lots of decisions to make. A professional advisor can help you:

• Work out how to make your money last through your retirement
• Decide how you want to take your income distributions
• Advise you on possible strategies for investment
• Work out plans for your estate
• Draw up the necessary legal documents