Distribution options when retiring

Retiring from full-time employment includes deciding what to do with your retirement plan assets, so keep your goals in mind when re-evaluating your retirement income strategy.

Option 1: Leave your assets in your current plan

The average retirement age is 65 for men and 63 for women.1 If you like your current plan’s options and your plan allows, you may want to leave your assets where they are. If you choose this option, you can create a systematic withdrawal plan that provides income during retirement. You’re limited to the plan’s investments and provisions, so make sure you understand them before you decide. You may want to consider this option if you agree with these statements:

  • I’m content with the plan.
  • I like the investment options.
  • I enjoy my current flexibility and control.
  • I’m comfortable with the plan’s limitations and provisions.

Option 2: Roll your assets into an IRA

You can move any qualified retirement money into an Individual Retirement Account (IRA), including savings from former employers’ retirement plans. A direct rollover allows you to consolidate your assets and still enjoy tax-deferred growth. You may find that an IRA makes it easy to manage your money and take withdrawals. Please note that IRAs may have different fees. You may want to consider this option if you agree with these statements:

  • I want more flexibility than my employer’s plan offers.
  • I prefer the simplicity of a single IRA.
  • I want the ability to move assets into a Roth IRA.

Option 3: Take the cash

Taking a cash distribution may cost you now and later. Depending on your age, the taxes and penalties you pay may greatly reduce your savings, and you may lose the wealth-building power of compounding over time. Make sure you understand the consequences before deciding to cash out.

potential effects of taxes and penalties

To illustrate the impact of withdrawing cash from a retirement plan, consider Jim, age 55, who has $50,000 in his employer’s retirement plan when he retires. View this chart to understand the financial impact if Jim were to cash out.

What happens to Jim’s $50,000 retirement plan savings if he cashes out?

Tax or penalty type



Standard tax

The plan administrator automatically deducts 20%, as required by law.
20% of $50,000 = $10,000


Early withdrawal penalty

Jim is under age 59½, the age when he can begin taking penalty-free withdrawals. He doesn’t qualify for any exceptions to early withdrawal penalties, so he owes an additional 10% in penalties.
10% of $50,000 = $5,000


Tax bracket adjustment

Jim is in the 32% income tax bracket. Only 20% was deducted under the standard tax penalty. He has to make up the 12% difference.
12% of $50,000 = $6,000


State and local taxes

We deducted $2,500 for state and local taxes, based on a 5% average tax rate; this amount may be higher or lower, depending on where Jim lives.


Final distribution

Jim’s taxes and penalties add up to $23,500, which is subtracted from his savings total. His $50,000 distribution now totals only $26,500.


Ask a financial professional for help understanding your options so you can make the decision that’s right for you.

1Center for Retirement Research at Boston College, The Average Retirement Age – An Update, March 2018.