By Nino Pavan, J.D., CFP®
Retirement can last as long as 20 to 30 years. Proper preparation is necessary; without it, you risk outliving your savings. Southern California Edison retirement plans give their workers benefits that many other companies do not, like access to benefits, 401(k) plans, and advantageous distribution rules. Still, without structure, even the most comprehensive plans can fall apart.
Here are some guidelines on withdrawal strategies to build and preserve a solid Southern California Edison retirement plan.
Understanding Your Southern California Edison Retirement Benefits
SCE employees have these retirement tools at their disposal:
SCE Pension Plans
Employees can opt for lump-sum payouts or annuity distributions. Their decision impacts tax consequences and estate planning.
401(k) Plan and Investment Options
SCE offers its workers a versatile 401(k) plan. Employees can take out options like the Schwab Personal Choice Retirement Account (PCRA) for more control of their balances. Some retirees may roll their 401(k) to a more tax-advantaged IRA.
Social Security Benefits
Delaying Social Security withdrawals until full retirement age at 70 (rather than taking them upon eligibility at 62) can increase monthly benefit payments.
Medical Subsidies
Many SCE retirees can stabilize healthcare costs with a 50% or 85% medical subsidy. This can work in tandem with other benefits for sustainable fund withdrawals.
Key Sustainable Withdrawal Strategies
Some of the most common withdrawal plans for Southern California Edison retirement funds include:
The 4% Rule
This rule is straightforward: Budget 4% of your total savings every year and adjust for inflation. This can be a problematic strategy in volatile markets, however.
Dynamic Withdrawals
These withdrawals are timed to market conditions; withdraw more in strong years, take out less in downturns. This can help extend your accounts’ lifespans.
The Bucket Strategy
In the bucket strategy, retirees sort assets into different time frames:
- Short-Term Bucket (1-5 Years): Build stability with cash and take short-term bonds.
- Medium-Term Budget (5-15 Years): Preserve capital with low-risk investments like balanced funds.
- Long-Term Budget (15+ Years): Pursue long-term growth with stocks, REITs, and index funds.
The Guardrails Strategy
This plan simply establishes a range of acceptable withdrawals at predefined times so withdrawals are right for market conditions.
Tax-Efficient Withdrawal Planning for SCE Retirees
A few more involved strategies can help employees maximize their Southern California Edison retirement plans.
The 55 Rule
If you quit your job at 55 or older, you can take funds from your 401(k) without an early withdrawal penalty of 10%. Traditional IRAs charge penalties for doing so before age 59½.
Roth Conversions
Rolling pre-tax 401(k) or IRA funds into a Roth IRA before required minimum distributions (RMDs) take effect can reduce tax liability in retirement.
Tax-Efficient Sequencing
Many advisors recommend an exact sequence of withdrawals from varied accounts:
- Taxable investment and savings accounts
- Tax-deferred 401(k) or traditional IRAs
- Tax-free income from Roth accounts
This approach can help to maximize tax efficiency.
Lump-Sum Distributions
To avoid oversized tax burdens from lump-sum distributions, consider rolling funds into a tax-deferred IRA.
Tricks and Traps of Withdrawal Strategies
Finally, take heed of a few steps to take (and some to avoid) in withdrawal planning:
- Create and keep a workable retirement budget.
- Start an emergency fund covering six months of living expenses.
- Pay off high-interest debt as soon as possible.
- Retire around October if you qualify for the grandfathered pension formula.
- Don’t ignore the potential of inflation.
- Don’t underestimate your healthcare costs, especially for out-of-pocket expenses.
- Don’t spend too much in your first years of retirement.
Consult with a financial or retirement advisor if you need help.
Start Working on Your Personalized Plan Today
Southern California Edison retirement plans are some of the most robust in the utilities industry. Financial Designs can help you build an investment and retirement approach that works best for your unique situation. And as fiduciary advisors, you can have confidence that we’re always keeping your best interests our top priority. Contact us to get on the road to prosperity in retirement.
To schedule a no-obligation consultation, call (909) 626-1642 or email fdc@fdcadvisors.com today!
About Nino
Nino Pavan is President and a CERTIFIED FINANCIAL PLANNER® professional at Financial Designs, a retirement planning firm in Claremont, California, with the mission of enabling individuals and families to financially prepare for and confidently enjoy their retirement years through goal-centered planning. With more than 30 years in the financial services industry, Nino is thankful for the opportunity to serve his clients by making the retirement process a stress-free one; he worries about their money so they don’t have to!
Nino holds a law degree from the University of Southern California, a Bachelor of Science in Telecommunications Management from DeVry Institute of Technology and has been a contributing advisor to Kiplinger. In addition to being a CERTIFIED FINANCIAL PLANNER® professional and Investment Advisor Representative, Nino has passed the Series 7, 24, and 63 securities exams and holds life and disability insurance licenses. He also conducts retirement and estate planning workshops for employees of major California companies. Outside of the office, Nino enjoys sports (regular and fantasy), traveling (specifically tropical destinations), walking, pickleball, church activities, and spending time with his wife Sherry and their two children, Derek and Sara. To learn more about Nino, connect with him on LinkedIn.
