Creating Retirement Income

Creating Retirement Income

Essentially there are two very basic methods of creating an income stream from your CCOERA retirement account(s) - Systematic Withdrawal Option or an Annuity. The major differences between these options are control, flexibility, and guarantees. The Systematic Withdrawal Option allows you to determine how much you want to withdraw from your account each year, with the flexibility to make changes at any time, and complete control over the management of your investments during retirement. An annuity is an investment contract purchased from a life insurance company that guarantees a lifetime monthly income based upon your account value, current age, and average life expectancy.

So which is best? It's an impossible question to answer, and a personal decision. Some people like an absolute guarantee, while others prefer flexibility and control. If you're torn between the two, another for consideration is a combination of systematic withdrawal and an annuity. You could purchase an annuity with a portion of your account and withdraw the remainder systematically, or as you need it.

Keep Your CCOERA Retirement Account

The process is simple - while you continue to maintain your CCOERA account(s), an amount specified by you, will be distributed on a periodic basis (monthly, quarterly, semi-annually, or annually). The balance of your account remains invested in the options you select, and can be changed as often as you wish. The regular income stream continues until all of the money in your account has been distributed.

The Systematic Withdrawal Option which allows you to control your periodic benefit and manage your investments. This will allow you to change withdrawal, as your needs change, and your account can benefit from potentially higher investment returns. Even CCOERA's most conservative investment option, the CCOERA Book Value Fund has historically outperformed the average interest earned in an annuity. Ultimately, the Systematic Withdrawal Option offers a participant additional investment opportunity by allocating as conservatively or aggressively as they see fit, while assuming the potential risks of their investment decisions. However, there is no guarantee how long your savings will last.

Specified Amount Distribution

This option is considered the most flexible, because you choose how much is periodically withdrawn from your account, based on your current needs. You maintain the ability to change the distribution amount at your convenience. You can meet with a CCOERA Retirement Counselor to determine how long an income stream will last based on specified or changing amounts, and an assumed interest rate.

Specified Period Distribution

When selecting this option you would instruct CCOERA to distribute your account over a specified number of years. You can meet with a CCOERA Retirement Counselor to determine how much of an income stream will result based on various withdrawal amounts during different periods, and an assumed interest rate.

Procedure:
To begin Systematic Withdrawal of your CCOERA Retirement Plan and/or CCOERA Deferred Compensation account(s), you and your employer representative will need to complete Form 4. To elect Systematic Withdrawals from your CCOERA Retirement Plan choose Option "E" in Section 2. To elect Systematic Withdrawals from your CCOERA Deferred Compensation account choose Option "F" in Section 4.

Benefits of Systematic Withdrawal

  • Ability to choose an income stream that meets your needs.
  • Flexibility to change amount distributed.
  • Investment control.
  • Future IRA or Roth IRA conversion option.

Potential Downside of Systematic Withdrawal

  • You may outlive your retirement savings.
  • No guaranteed interest rate or investment return.
  • Factors to Consider
  • Changing income needs
  • Inflation
  • Investment return/interest

Annuities

An annuity is a financial contract purchased through a life insurance company that guarantees regular income (usually monthly) for a specific period of time, your lifetime, or the lifetimes of you and your spouse. Annuities are available with many different types of guarantees, and provide for several options regarding the treatment of funds after your death. Lifetime payments may be fixed or increase with inflation like those received from Social Security or a traditional pension plan. The most obvious appeal of annuities is the lifetime guarantee, which eliminates the worry of outliving your money.

When purchasing an annuity that guarantees payments for life, the insurance company factors your current age, average life expectancy, and a fixed interest rate for the life of the contract, which all translates into a number referred to as the "purchase payment rate." Also included in the purchase payment rate are commissions and profit to the insurance company.

Different Types of Annuities

There are many different types of annuity payouts and guarantees. The more common ones are as follows:

  • Period Certain Annuity
  • Life Annuity
  • Full Cash Refund Annuity
  • Life Annuity with Period Certain
  • Joint and Survivor Annuity
  • Joint and Survivor Annuity with Period Certain

Period Certain Annuity

Provides for a specified number of guaranteed monthly payments (60, 120, 180, or 240). If the participant dies on or after the Annuity Commencement Date but before receiving the guaranteed number of payments, the payments will continue to the designated beneficiary(ies) until the guaranteed number of payments has been made.

Life Annuity

Provides for monthly annuity payments during the participant's lifetime. The monthly annuity payments shall end with the last payment due on or before the date of the participant's death. Generally, these are not received.

Full Cash Refund Annuity

Provides for monthly annuity payments during the participant's lifetime. The annuity benefit shall end with the last monthly payment due on or before the participant's date of death. However, upon receipt of proof of the death of the participant, the beneficiary will receive in a lump sum or through periodic installments continuing any excess of the annuity purchase price over the total annuity benefit payments due the participant up to and including the participant's date of death.

Life Annuity with Period Certain

Provides for monthly annuity payments during the participant's lifetime, with a specified number of payments (60,120,180 or 240) guaranteed. If the participant dies on or after the Annuity Commencement date but before receiving the guaranteed number of payments, the payments will continue to the designated beneficiary(ies) until the guaranteed number of payments has been made.

Joint and Survivor Annuity

Provides for monthly annuity payments during the participant's lifetime, with a specific percentage (50%, 55%, 67%, 75%, or 100%) of such monthly annuity to continue to the joint annuitant from the first day of the month following the date of the participant's death. If the joint annuitant predeceases the participant, monthly annuity payments will continue unchanged at 100%. All payments will end with the last payment due on or before the death of the participant or the joint annuitant, whichever occurs last.

Joint and Survivor Annuity with Period Certain

Provides for monthly annuity payments during the participant's lifetime, with a specified percentage (50%, 55%, 67%, 75%, or 100%) of such monthly annuity to continue to the joint annuitant from the first day of the month following the date of the participant's death. If the participant's death occurs on or after the Annuity Commencement date but before receiving a specified number of payments, payments to the joint annuitant for the remainder of the certain period will be at 100% regardless of the percentage continuation elected by the participant. If the joint annuitant predeceases the participant, monthly annuity payments will continue at 100%. If both the participant and the joint annuitant die before the guaranteed number of payments (60, 120, 180, or 240) has been made, the payments will continue to the designated beneficiary(ies) for the remainder of the certain period.

Benefits of Annuities

  • Ability to choose an income stream that meets your needs.
  • Guaranteed retirement income.
  • Guaranteed investment return/interest.
  • You can't outlive your income.
  • Potential Downside of Annuities

Low interest rate credited to your account.

  • Periodic payments may not be changed.
  • Some annuity contracts do not guarantee return of principle.
  • Factors to Consider
  • Changing income needs
  • Inflation
  • Investment return/interest