For decades, you've saved and invested for retirement, and then that day arrives. Now, you're forced to switch gears and figure how best to spend your nest egg so you won't outlive your savings.
It's not an easy adjustment. "It's a mind-set change," said Judith Heltzel, a financial planner with Capital Financial Planners in Salem, Ore.
"Saving for retirement is a concept people can relate to. It's putting away nuts for the winter like a squirrel. But then comes eating them. How long is the winter going to last? There is no next crop. This is all you got."
Rather than turning to carefree days in a hammock, new retirees often are stressed, experts say. Some pressure comes from adjusting to life off the job, but also hanging over their heads are huge, complex financial decisions that will shape their retirement.
Often, retirees are reluctant to tap retirement assets, said Jane Larsson, vice president of Fidelity Investments' Retiree Services in Boston. "The key to being comfortable is to have a plan in place and a sense of what you can comfortably withdraw without fearing that you'll outlive your assets," she said.
The best plan for a retiree is based on so many individual variables that there are no uniform rules.
Of course, a major factor is retirement assets. How much have you saved? Do you have a traditional pension, a 401(k) or both?
Will you retire before 59 1/2, the age at which you can draw money penalty-free from tax-deferred accounts, or later? Will you work part-time? Will you take Social Security benefits early?
Then, of course, there are the issues of lifestyle, health, life expectancy, tax bracket and whether you want to leave money to heirs.
And don't forget long-term care, which often is overlooked, said Shaun Mathews, a senior vice president with ING Aetna Financial Services in Hartford, Conn. "It's like packing up the car for a family vacation and leaving the spare tire at home," he said.
Ideally, workers begin thinking about these issues five years before retirement, although most wait until a year or so before leaving the work force, said Joseph Healy, retirement specialist at T. Rowe Price Group in Baltimore.
Online calculators and software programs can help workers wade through the decision-making process. This might be the time, though, to hire a professional to help devise a plan.
Here are some of the basic questions you'll face as a new or soon-to-be retiree older than 59 1/2:
* What to do with your employer's retirement account? The plan often offers options.
For instance, some companies allow workers to take a traditional pension either in a lump sum distribution or in an annuity that pays a monthly check during the retiree's life. Others require an annuity.
Or, retirees might be able to keep their 401(k) with their former employer, roll the balance into an individual retirement account or ask for an annuity.
Most often, workers roll their retirement account into an IRA and pay ordinary income tax on the money when withdrawn, experts said. Generally, that's a good move because you will have greater control of how the money is invested and easy access, said Twila Slesnick, co-author of "IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out."
Some retirees, though, don't want to think about investments or just want a stream of income they can rely on for life. For them, an annuity might be best, Slesnick said.
You can buy an annuity to provide an income for your life only, or one that offers benefits to a surviving spouse. Annuities vary and so do costs. Retirees should shop and compare before buying one, experts agree.
* When should you collect Social Security benefits? You can take reduced Social Security benefits early at 62 or wait a few years to collect full benefits. (If you wait until 70, you collect even more, although most people don't wait that long.)
Whether you take benefits early depends on your life expectancy, said Jack Brod, a principal with mutual fund giant Vanguard Group.
"If you are confident you are going to live well beyond age 78, typically it's better to wait until age 65 and take the higher Social Security amount," Brod said. But if you know reaching 78 isn't likely, you would be better off taking benefits early, he said.
* How much can you withdraw from your nest egg each year? "It's the withdrawal amount that will be the primary driver of success or failure," Healy said.
Unfortunately, this isn't easy to calculate and people tend to overestimate how much they can withdraw by 20% to 25%, he said.
The withdrawal rate is more than just adding up monthly expenses. The equation also must factor in that retirees will be selling investments in up and down markets and that the amount they pull out must rise to keep up with inflation, he said.
For instance, a retiree withdrawing $2,085 per month today will need $4,496 a month in 27 years to maintain the same lifestyle, Healy said.
Price's Retirement Income Manager program, which incorporates millions of computer calculations, helps retirees with choosing the best withdrawal rates and developing an investment plan for a $500 fee. The company's free online Retirement Income Calculator at http://www.troweprice.com/ric enables people to try out different withdrawal rates based on their assets.
A rule of thumb is withdrawing no more than 5% of assets annually for a 20-year retirement, 4.5% for 25 years or 4% for 30 years, Healy said. That's assuming a 3% annual inflation rate and that the money is invested in a well-balanced portfolio.
* What accounts should you draw from first? The general rule is to let money continue to grow in tax-deferred accounts as long as possible and spend money in taxable accounts first, experts said.
But some suggest that might not suit everyone. Wealthy retirees, for instance, might want to pass appreciated stock to heirs and, therefore, tap into tax-deferred accounts earlier, Healy said.
If you think you might be the exception to the rule, it's best to consult with a qualified tax advisor or financial planner to figure out under which tax scenario you come out ahead.
Remember, too, that once you pass age 70 1/2, you must make withdrawals from traditional IRAs, 401(k)s and some other retirement accounts. This isn't the case with a Roth IRA.