The typical employee with a 401(k) or similar retirement plan gets a choice on how to distribute the nest egg at retirement. Most workers take the lump-sum option and then reinvest all or some of the proceeds, typically in an IRA. Only about 7 percent of workers spent the entire retirement account immediately upon retiring, according to a recently released 2007 survey by the Investment Company Institute of 600 workers who retired in 2002 or later.
About 70 percent of the retirees reported having a choice of distribution options. Other commonly offered choices include annuities, installment payments, or deferral of the distribution, and some employers allowed a combination of withdrawals. Retirees who chose installment payments often cited strong needs for current income as their reason for doing so. Those seeking a steady stream of income over their lifetimes often chose to annuitize their assets. Here's a look at the most popular retirement fund distribution options:
Defined-Contribution Account Withdrawals at Retirement
- lump sum, reinvested all (34 percent)
- annuitized entire balance (18 percent)
- deferred distribution of entire balance (16 percent)
- lump sum, reinvested some, spent some (11 percent)
- multiple dispositions (9 percent)
- lump sum, spent all (7 percent)
- installment payments (6 percent)
Note: Seventy percent of respondents reported having a choice of distribution options, and 30 percent recalled having no choice. Components do not add to 100 percent because of rounding.
Source: Investment Company Institute, 2007
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