Retirement Withdrawal Strategies

Very well known in the financial industry, the 4% rule is a great approach to begin your journey toward strategically planning your retirement. This approach signals you to withdraw 4% of your savings during the first year of your retirement. Every following year of the first initial withdrawal, take another 4% of your savings while keeping in mind inflation adjustments. This method is considered relatively safe and is mainly used if you still have other sources of income going toward your retirement.

A total return approach is also similar to the 4% strategy, except with a slight tweak to its method. The 4% withdraws exclusively from your savings account. The total return approach withdraws money from all your investment accounts, like annuities, dividends, and returns, before ever withdrawing from your savings account. The total return strategy can provide an extra shield preventing you from withdrawing from your principal account as much as possible.

Creating a floor may be one of the safest retirement strategies. Creating a floor involves building up enough sources of income to guarantee a sufficient amount of external income to cover your current expenses. These outside investments are secured earnings like pensions, annuities, social security, and mutual funds. Market performance is typically not a huge factor when you have these sources.

Using account sequencing can be a helpful tax-efficient retirement withdrawal strategy. Account sequencing is obtaining a target amount of money through your investment and savings accounts, which can ultimately minimize taxes and create strategic withdrawals.

This method can give you more freedom and help you create a more detailed plan. The bucket strategy lets you split your savings into separate accounts for separate decisions and timelines. Some ways to divvy out your savings account is to first start by opening up a high-yield savings account for the short term, or you can invest in bond/cash funds. For cash, you need access to it soon (within 2-10 years), you could keep that money in a mix of bonds, stocks, and CDs for decent growth, or you could create a fixed-income investment account. For money you don’t plan on touching for 10+ years, you can put that money into long-term investment/retirement accounts or growth funds.

Several standard retirement accounts must have RMDs (Required Minimum Distributions). An RMD is the amount of money that needs to be withdrawn from an employer-sponsored retirement plan or IRA by owners and participants who qualify. The age for withdrawing money as of 2022 is 72 years old. Once an account holder reaches this age, they must withdraw their money by the following April 1st; if the money is not withdrawn during this time period, it can lead to a considerable tax penalty. That being said, minimizing your RMDs can be an excellent tax strategy! You can reduce your RMDs by reorganizing your money from retirement accounts like a Roth IRA, which you can withdraw and possibly grow tax-free.