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Length of Payments

If you need additional income in retirement, you may ask yourself if you need that income for a fixed period of time or for the rest of your life.   

Examples for needing additional income Fixed period or lifetime?
Fill a gap until you start Social Security​ Fixed period
Make remaining payments on a mortgage Fixed period
Pay college tuition for children Fixed period
Cover basic living expenses (food, clothing, utilities) Lifetime
Cover recurring optional expenses Lifetime
IRS required minimum distributions Lifetime
Ongoing medical expenses​ Lifetime​

 

The NC 401(k)\NC 457 Transfer Benefit is designed to provide monthly income for the rest of your life, and possibly a survivor, from the time you transfer the funds from the plan(s) to your retirement benefit. If you need income only for a fixed period of time, a systematic or partial withdrawal directly from your NC 401(k)/457/403(b) may be a better alternative.
 
The NC 401(k), NC 457, and NC 403(b) accounts feature systematic withdrawals that let you establish recurring income planned to last for a fixed period of time, or until your balance is reduced to $0. Contact Prudential Retirement or TIAA-CREF for more information on this option.

 

Features of systematic withdrawals include:

1. The money remains in your NC 401(k), NC 457, NC 403(b) or any supplemental  account and remains invested as you specify. 


2. You can change or cancel the systematic withdrawal at any time; and, if you die before withdrawing your full balance, the remainder will go to your designated beneficiary(ies). There may be certain restrictions if you choose to receive a life expectancy payment from the plan(s).

 

 Scenarios

 
​Below are scenarios to help you evaluate the most beneficial method of payment. 

Scenario 1:
Suppose you are age 65 and you need additional income to cover your basic living expenses. You read that the average 65-year-old will live about 20 more years. You decide to set up systematic withdrawals from your NC 401(k) account, which has a balance of $200,000. Your advisor calculates that you can withdraw $16,000 per year and if you earn a 5% investment return, your money will last roughly 20 years. Suppose you do indeed earn a 5% return, but at age 85 you are still living and quite healthy. Now that your NC 401(k) is gone, how will you cover your expenses? 

If you had elected the NC 401(k)/NC 457 Transfer, you would still be receiving a monthly benefit and know that you would continue to receive that benefit as long as you live. 

Scenario 2:
Suppose you are age 55 and plan to start drawing Social Security at age 62. You determine that you will have sufficient recurring income once you draw Social Security, but do not have enough now. Suppose you elect to transfer your NC 401(k) or NC 457 funds to the retirement system to fill in that gap:
transfer6402.jpg
While you have now covered the gap, you have created too much recurring income after age 62. If you had set up systematic withdrawals of the same amount and invested appropriately, then at age 62 you would still have a balance in your 401(k) that you could use for emergencies or pass on to your heirs.