Length of Payments
If you need additional recurring income, you should ask yourself if you need that income for a fixed period of time or for the rest of your life. The NC 401(k)/457 transfer is designed to provide income for the rest of your life. If you need income for a fixed period, a systematic withdrawal from your NC 401(k)/457 may be a better alternative.
| Reason for Needing Additional Income | Fixed Period or Lifetime? |
|---|---|
| Fill a gap until you start Social Security | Fixed period |
| Make remaining payments on mortgage | Fixed period |
| Pay college tuition for children | Fixed period |
| Cover basic living expenses (food, clothing, utilities) | Lifetime |
| Cover recurring optional expenses (for example an annual vacation) | Lifetime |
| Ongoing medical expenses | Lifetime |
The NC 401(k) and 457 plans offer systematic withdrawals, so you can establish recurring income planned to last for a fixed period. Contact the plan administrator, Prudential Retirement, for more information on this option. The money remains in your NC 401(k) or 457 account and remains invested as you specify. You can change or cancel the systematic withdrawal at any time and if you die before withdrawing your full balance, the remainder will go to your designated heirs.
What can happen if the period of time when you need the money does not match the method of payment you set up?
Outliving Your Income
Suppose you are age 65 and you need additional income to cover your basic living expenses. You read that the average 65 year old will live about 20 more years. You decide to set up systematic withdrawals from your NC 401(k) account, which has a balance of $200,000. Your advisor calculates that you can withdraw $16,000 per year and if you earn a 5% investment return, your money will last roughly 20 years. Suppose you do indeed earn a 5% return, but at age 85 you are still living and quite healthy. Now that your NC 401(k) is gone, how will you cover your expenses? If you had elected the NC 401(k)/457 transfer, you would still be receiving a monthly benefit and know that you will continue to receive that benefit as long as you live.
Waiting for Social Security
Suppose instead that you are age 57 and plan to start drawing Social Security at age 62. You determine that you will have a gap between recurring income and recurring expenses of only $5,000 per year once you are drawing Social Security, but have a gap of $15,000 now. Should you elect to do a NC 401(k)/457 transfer to the Retirement System to fill the $15,000 gap?
If you transfer enough to receive an additional $15,000 per year, you will have created too much recurring income after age 62. Instead, you could transfer enough to cover the $5,000 per year permanent gap. From age 57 through 62, you could take systematic withdrawals of $10,000 per year from your NC 401(k)/457. By not funding the additional $10,000 through the Transfer Benefit, you would have a larger balance in your NC 401(k)/457 that you could use for emergencies or pass on to your heirs.
