During your working years, your emphasis was to accumulate as much as possible for retirement. But as you near retirement age, you need to start thinking about how to withdraw those funds to maximize your income. To help accomplish that, avoid these mistakes:

• Not understanding all available options. Each retirement option, such as 401(k) plans, profit-sharing plans, and individual retirement accounts (IRAs), has different tax and plan rules regarding withdrawals. Review all your options to select the best choice for your circumstances. In many cases, your selection will be irrevocable.
• Not using reasonable estimates to calculate your withdrawal amounts. The amount you should withdraw annually can be calculated based on how much principal you want remaining at the end of your life, your life expectancy, your expected long-term rate of return, and your expected long-term inflation rate. If you don't use conservative estimates, you run the risk of depleting your assets before you die. Even with conservative estimates, review these factors annually so you can adjust the withdrawal amount if necessary.
• Not withdrawing funds in a tax-efficient manner. Before beginning withdrawals, review all your retirement assets, including pension plans, IRAs, and taxable investments, to determine the most tax-efficient strategy for withdrawals. This can add years to the life of your retirement funds.
• Retiring early without considering the financial implications. Retiring even a few years earlier than planned can significantly impact the amount needed for retirement. Make sure you'll have sufficient funds for your entire retirement before opting to retire early.
• Taking a lump-sum distribution in your name. When rolling over a lump-sum distribution from a 401(k) plan or other qualified plan, transfer the funds directly to your new account's trustee. Otherwise, your former employer will withhold 20% for taxes when the funds go directly to you. You will then have to replace the 20% from your own funds within 60 days or the 20% withholding will be considered a distribution, subject to income taxes and possibly the 10% federal tax penalty.
• Not taking required minimum distributions. Once you reach age 70 1/2, you must take required minimum distributions from traditional IRAs and other qualified plans or pay a 50% excise tax on the amount you should have withdrawn. If you are still working, you can delay withdrawals from qualified plans, but not from traditional IRAs, until you retire.
• Not selecting proper beneficiaries. The proper selection of beneficiaries can make a significant difference in the amount of taxes owed when you die.
• Not seeking advice. Determining how much to withdraw from your retirement investments and the best way to make those withdrawals can be complicated. Since the decisions are often irrevocable and can have a major impact on your retirement lifestyle, seek guidance first.