Retirement planning is generally viewed as a three-step process.

Step 1 is the projection phase, where you determine how much to save for retirement.

Step 2 is the accumulation phase, where you save and invest for retirement. Depending on how much you've saved for retirement, you may still be in Step 2. Some people must still save even in retirement, so that retirement planning is an ongoing process.

Step 3 is the distribution phase, which is comprised of two interrelated parts:

• Selecting a distribution option
• Taxation of distribution options

Now that you're retiring, you probably thought the decision-making process was over. However, you now have to decide how you would like to withdraw money from your retirement plan(s). Some retirement plans have only one option. Other plans have several annuity options to choose from, as well as a lump-sum distribution option.

Which option is best for you depends on several factors, including your family situation and your ability to manage large sums of money. We'll discuss these options in this section. In many cases, the tax treatment of the retirement distribution does not have to be a controlling factor, because lump-sum distributions can be rolled over to an IRA without tax consequences. But the tax consequences should be considered, and you must consider penalty taxes when making your distribution choice.