Lockheed Martin 401(k): What to Consider Before and After Retirement

For many Lockheed Martin employees, the 401(k) eventually becomes one of the largest assets on their balance sheet.

Years of contributions, company contributions, investment growth, and potentially Lockheed Martin stock can turn the account into a substantial part of your retirement plan.

But as retirement gets closer, the question changes.

It is no longer simply:

“Am I saving enough?”

It becomes:

“How should this money actually work once my paycheck stops?”

That transition is important. Your investment risk, taxes, liquidity, Social Security, pension income, company stock, and eventual withdrawal strategy all begin interacting with one another.

If you are within five years of retirement from Lockheed Martin, here are some of the decisions we believe deserve a closer look.

Your 401(k) Strategy Should Change as Retirement Gets Closer

Earlier in your career, the primary job of your 401(k) is relatively straightforward: save consistently and give those dollars time to grow.

The final five years before retirement are different.

At this point, we generally want to understand how the 401(k) fits into the employee's entire retirement picture rather than looking at the account in isolation.

That includes questions such as:

• How much investment risk are you taking?
• How much money will you need from the portfolio during the first several years of retirement?
• When will Social Security begin?
• What income will your pension provide?
• How much money do you have outside the 401(k)?
• Are there opportunities for Roth conversions after retirement?
• Do you own Lockheed Martin stock inside the plan?
• How will withdrawals eventually affect your taxes?

These are many of the same issues we discuss in our broader guide to Lockheed Martin retirement planning.

The difference is that here, we are looking specifically at how your 401(k) supports those decisions.

1. Revisit How Much Risk You're Taking

One of the first things we evaluate as a Lockheed employee approaches retirement is the investment allocation inside the 401(k).

Someone who is 20 years away from retirement can generally approach market volatility differently than someone planning to retire next year.

That's because once you begin withdrawing money, a significant market decline can have a much larger impact.

Imagine retiring with $1.5 million in your 401(k) and immediately experiencing a significant market decline. If you also need to withdraw $75,000 or $100,000 from the portfolio to support your lifestyle, you may be forced to sell investments while they are down.

That is one reason retirement planning isn't simply about maximizing returns.

The goal is to take enough investment risk to support your long-term retirement while avoiding unnecessary risk with money you may need relatively soon.

That may mean adjusting the portfolio as retirement approaches—but it doesn't necessarily mean becoming extremely conservative.

Retirement could last 25 or 30+ years. You still need growth.

The appropriate balance depends on how much income your pension and Social Security provide, your spending needs, other assets, and how dependent you will be on the 401(k).

2. Build Money Outside Your 401(k), Too

One of the planning issues we frequently emphasize during the final years of someone's career is liquidity outside the retirement plan.

It is possible to do an excellent job saving for retirement and still arrive at retirement with almost everything inside a 401(k).

That can create limitations.

For example, imagine retiring at 62 with:

• $1.6 million in your Lockheed Martin 401(k)
• A pension
• $40,000 in the bank
• Very little invested outside retirement accounts

On paper, you may be in excellent financial shape.

But almost every dollar you withdraw from the traditional 401(k) generally adds to your taxable income.

That's why we like to see retirees build what we think of as a bridge account before retirement. A taxable brokerage account can provide accessible invested assets between your short-term cash and long-term retirement accounts.

That additional bucket can give you more flexibility over where your income comes from before Social Security and Required Minimum Distributions begin. It can also provide a source for larger expenses without requiring every dollar to come from a pre-tax retirement account.

We go deeper into this strategy in Why High Earners Need Brokerage Accounts Beyond Their 401(k).

For Lockheed employees still several years from retirement, this is why we often look beyond simply maximizing the 401(k).

The goal is to build the right mix of accounts, not just the largest possible retirement account.

3. Take Advantage of Catch-Up Contributions

Your highest earning years often occur toward the end of your career.

Fortunately, they can also be some of your most valuable retirement-saving years.

Once eligible for catch-up contributions, employees have an opportunity to put additional dollars into the 401(k). Depending on your income, current tax bracket, and retirement plan, those final years of contributions can serve two purposes:

First, they increase the assets available for retirement.

Second, pre-tax contributions may reduce taxable income during years when you are earning considerably more than you expect to report after retirement.

That second piece can be particularly valuable.

Someone earning a high salary at Lockheed Martin may be in a relatively high marginal tax bracket today but have several lower-income years immediately after retirement.

Those lower-income years can potentially create opportunities for deliberate withdrawals or Roth conversions.

Instead of evaluating each year's contribution decision independently, we prefer to look at the entire tax timeline.

4. Understand What You Own in Lockheed Martin Stock

Company stock inside a 401(k) deserves special attention before anything is rolled over.

Lockheed employees who have accumulated appreciated company stock may potentially have an additional tax-planning consideration known as Net Unrealized Appreciation, or NUA.

NUA rules can potentially allow the appreciation on qualifying employer stock to receive different tax treatment than it would if the shares were simply rolled into an IRA.

But the rules are specific, and executing a rollover without evaluating the company stock first could eliminate the opportunity.

That doesn't mean every Lockheed employee who owns company stock should use NUA.

It means:

Before moving the 401(k), understand exactly what you own and what the tax consequences of moving it will be.

This is one reason we view the 401(k) decision as part of financial planning for Lockheed Martin employees, rather than simply an administrative rollover decision.

5. Don't Treat Your Pension and 401(k) as Separate Decisions

For employees who have a Lockheed Martin pension, the pension can create an important source of predictable retirement income.

That can also affect how the 401(k) should be managed.

Suppose your household needs $120,000 per year to support its lifestyle and your pension and Social Security will eventually provide a significant portion of that amount.

Your portfolio has a different job than it would if virtually all $120,000 needed to come from investments.

That is why we don't like evaluating the pension, 401(k), and Social Security independently.

They are three different pieces of the same retirement income plan.

We've gone deeper into this in our guide to the Lockheed Martin pension and what employees should know before retirement.

The objective is to determine how much reliable income the household will have, how much needs to come from investments, and how that balance changes throughout retirement.

For married couples, we also want to understand what happens if one spouse dies first.

The largest pension payment isn't necessarily the best pension election if it creates a significant reduction in household income for the surviving spouse.

That decision can influence how much pressure ultimately falls on the 401(k) later in retirement.

6. Your 401(k) Balance Isn't the Same as Your Spendable Balance

This is one of the most important mindset shifts for employees retiring with large traditional 401(k) balances.

If you have $2 million in a pre-tax 401(k), you don't really have $2 million available to spend.

You have $2 million before taxes.

Every withdrawal can interact with other pieces of your tax return.

Larger withdrawals may:

• Increase your federal taxable income
• Cause more of your Social Security benefits to become taxable
• Affect Medicare IRMAA premiums
• Reduce the amount of room available for Roth conversions
• Eventually contribute to larger Required Minimum Distributions

This is why we believe tax planning becomes increasingly important as 401(k) balances grow.

The question isn't merely how much money you have accumulated.

It's:

How efficiently can you turn those assets into retirement income over the next several decades?

7. The Years Immediately After Retirement Can Be Especially Valuable

Consider a Lockheed employee who retires at 62.

Their salary disappears.

Perhaps they have pension income, but they decide to delay Social Security.

Required Minimum Distributions haven't started yet.

Suddenly, taxable income could be considerably lower than it was during their working years.

That creates what we often call a tax-planning window.

During those years, you may have opportunities to intentionally recognize income through Roth conversions or withdrawals from pre-tax accounts.

The objective isn't necessarily to pay the least tax possible this year.

It is to evaluate whether paying some tax at a known rate today could reduce taxes later in retirement.

For someone with a large Lockheed 401(k), this period between retirement and later-life income sources can become one of the most valuable planning opportunities available.

And this is another reason having money outside the 401(k) can matter.

If some of your spending can be supported by cash or taxable investments, you may have more control over how much taxable income you deliberately generate from retirement accounts.

8. Understand Your Options Before Moving the Account

Retirement doesn't automatically mean your Lockheed Martin 401(k) needs to move immediately.

Depending on your circumstances, you may be able to leave assets in the plan, roll some or all of the account to an IRA, or evaluate other distribution strategies.

There may also be circumstances where employees can access or move certain assets while they are still working, depending on the plan's rules and the source of those assets.

The important thing is not to make the rollover decision in isolation.

Before moving the account, we would want to understand:

What investments do you own?

Is there Lockheed Martin stock?

What types of contributions are in the account?

What tax opportunities exist?

Are you still working?

What does your retirement income plan look like?

These questions should come before the rollover paperwork.

Our next guide, Should You Roll Over Your Lockheed Martin 401(k) When You Retire?, goes deeper into that specific decision.

What This Can Look Like in Practice

Imagine a married Lockheed employee preparing to retire at 63.

They have:

• $1.7 million in their 401(k)
• A Lockheed Martin pension
• Some Lockheed Martin company stock within the plan
• $175,000 in taxable investments and cash
• A spouse who plans to continue working for several more years
• Social Security benefits they don't immediately need

There isn't one isolated decision to make.

There is a sequence.

First, we would want to understand what the household actually needs to spend and how much income will disappear when the Lockheed paycheck stops.

Then we can evaluate the pension election and survivor protection.

We can determine how much liquidity should remain outside retirement accounts.

We can review the investment risk inside the 401(k).

We can analyze the Lockheed Martin stock before initiating a rollover.

And then we can map out how taxable income could change once both spouses are retired.

That gives us a much better foundation for evaluating whether Roth conversions or strategic withdrawals make sense before Social Security and Required Minimum Distributions eventually increase household income.

That's the difference between having a collection of retirement accounts and having a retirement plan.

The Bigger Picture

Lockheed Martin employees often spend decades building their retirement benefits.

The final few years are about making those benefits work together.

Your 401(k), pension, Social Security, taxable investments, cash reserves, and tax strategy shouldn't operate independently.

They should each have a specific job.

If you're approaching retirement from Lockheed Martin, our broader guide to 7 decisions to make before retiring from Lockheed Martin is a good place to see how these pieces fit together.

You can also read our broader overview of financial planning for Lockheed Martin employees in Dallas-Fort Worth.

And if you're deciding what to do with the 401(k) itself after retirement, the next decision is whether keeping the plan or rolling it into an IRA better supports your overall strategy.

At Apeiron Planning Partners, we help Lockheed Martin employees and other aerospace and defense professionals coordinate these decisions as they prepare for retirement.

If you'd like help evaluating how your Lockheed Martin 401(k) fits into your retirement plan, schedule a conversation with our team.

Related Resources

• Lockheed Martin Pension: What Employees Should Know Before Retirement
• Lockheed Martin Retirement Planning: 7 Decisions to Make Before You Retire
• Financial Planning for Lockheed Martin Employees in Dallas-Fort Worth
• Why High Earners Need Brokerage Accounts Beyond Their 401(k)
• Roth Conversions: Why Retirees Talk About Them So Much