As you move into the world of leisurely pursuits, you have some major decisions to make—should you take a lump sum or have your pension paid as an annuity? How do you apply for government benefits? What's the best way to have your tax-deferred investments paid to you? Here are the best answers for your situation.

When you retire, you must make sure you've protected your pension -- which includes any 401(k), 403(b), or profit-sharing money you've saved for retirement. If you have a pension plan with your employer, we believe some retirees should take your money out of this plan and reinvest it yourself. You'll have more control over your money if you're the one picking the investments.

But when we say "take the lump sum" (and this is important) we don't mean have your company send you a check! We want you to take your money out of the plan, but not actually take possession of the money.

Instead, roll the money over into an IRA with a custodian-to-custodian transfer. With this type of transfer, you never take physical possession of your retirement money. The person who administers your current plan sends the money directly to whatever new retirement plan you designate.

Why not just have the money sent to you? Because good old Uncle Sam will skim a cool 20% off the top if you take possession of your money. Even if you just get a check, walk across town and put it in a new retirement account, you'll be 20% short. You will then be required to come up with that 20% out of your own pocket when you roll over these retirement savings into a new plan. And if you don't cough up that extra 20%—which was your money to begin with—you get hit with income taxes on that money, plus a 10% penalty if you haven't reached age 59-1/2.

For example, suppose you've saved up $100,000 in your company pension plan and you leave your job. Under the law, they send you a check for $80,000—and send the other $20,000 to the IRS. You've just lost $20,000 (you may get it back at tax time, you may not). To avoid taxes on the distribution, and continue saving for retirement, you can roll the $80,000 over into another qualified plan. But if you don't come up with another $20,000, you'll have to pay income taxes and (if you're under age 59-1/2) a 10% penalty on money you never saw!

Here's how you sidestep this trap. Talk to the administrator (custodian) of your current plan before he or she moves your retirement money, and tell him you want to do a custodian-to-custodian transfer into a "conduit" IRA. We recommend you set up your conduit IRA in a money market fund with a top-performing mutual fund. Your current custodian will contact the new custodian—but follow up with a call yourself after a week or two to make sure the transfer is going smoothly.

You can then withdraw money from your new conduit IRA without penalty (as long as you're over 59-1/2) and only pay income taxes on your withdrawals—not on the whole lump sum. Meanwhile, your nest egg continues to grow tax-deferred.

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