A strategy for withdrawing from IRAs, 401(k)s and other investment accounts is a key part of your retirement income planning and can help ensure you have enough money to meet your needs throughout retirement.
Common withdrawal strategies include the 4% rule, the bucket strategy and dynamic withdrawals.
Taxes, life expectancy, additional income sources and your investment portfolio should be factored into your withdrawal strategy.
As you approach retirement, you may have questions about the money you’ve saved: Will it be enough? Will it afford you all the opportunities you hope to have, such as traveling and spending time with loved ones?
There’s another important question: How will you withdraw funds from individual retirement accounts (IRAs), 401(k)s and other investment accounts to meet your needs and ensure you don’t outlive it?
A key part of retirement planning is deciding which withdrawal strategy is the best for your specific situation and how different factors will impact your savings. Here are three options to consider.
Since you can take out less money if you need to, this approach can help ensure your savings last the length of your retirement.
When choosing a withdrawal strategy, it’s important to take factors such as taxes, life expectancy, additional income sources and your investment portfolio into consideration.
When choosing a withdrawal strategy, it’s important to take factors such as taxes, life expectancy, additional income sources and your investment portfolio into consideration. These factors can influence your savings, so the earlier you plan for them, the more flexibility you’ll have during retirement.
You may also owe taxes on the money you withdraw from your retirement savings accounts. Figuring out how to make tax-savvy withdrawals can be challenging, especially when drawing from multiple accounts with unique tax implications.
If you’re withdrawing from a traditional 401(k) or IRA, you will owe income tax on that money.
Withdrawals from a Roth 401(k) or Roth IRA are generally tax free, as you’ve already paid taxes on your contributions.
If you have both traditional and Roth retirement plans, you may consider making withdrawals from taxable accounts first and Roth accounts second (a traditional approach) or making proportionate withdrawals from both taxable and Roth accounts for a more stable annual tax impact (a proportional approach).
There may be potential tax penalties for taking distributions before age 59 1/2.
Your income sources will vary in retirement, and it might not be easy to keep track of the taxes you owe. Learn more about how different sources of retirement income are taxed.
Choosing a retirement withdrawal strategy is an important decision. Be sure to consult with a financial professional about your own specific circumstances and review your financial plan at least annually in order to address any issues proactively.
Learn how we can help you plan and create your retirement income strategy.
Customize your income in retirement with these common investment choices.
Review 18 important to-dos as you make your way toward retirement.