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Like most things in life, retirement fund withdrawals should be carefully planned to maximize your assets and get the most mileage from your retirement funds. Of course, the first act is to view your retirement fund “inventory” to see what your options are. You may be able to draw from any of the following types of retirement accounts:.
Regardless of the types of retirement funds you have, there are multiple options for withdrawing them to help you get the highest value from these funds throughout your retirement.
Penalty-free withdrawals from IRAs and 401(k) / 403(b) accounts begin at the age of 59.5. You do not want to start withdrawing from these funds before that age, if possible, to avoid potentially steep penalties. Mandatory withdrawals begin at the age of 70.5. Roth IRAs are the exception, however, as there are no mandatory withdrawals until after the death of the account holder.
Which Funds First?
When determining which of your retirement funds to withdraw first, some aren’t up for debate. You must begin receiving minimum distributions by certain stages of your life. There are, however, some retirement funds that leave you in the driver’s seat for how you wish to manage your retirement finances.
One of the primary considerations when determining which retirement funds to utilize or withdraw first involves taxation. The more you pay in taxes, the less of your money you get to keep. When funds and opportunities to earn more funds are limited, as they are in retirement, it is best to adopt a strategy that minimizes your contributions to Uncle Sam.
The other vital consideration involves your income needs. It is wise to consider the monthly income you will require to maintain a particular lifestyle during your retirement. Once you understand the monthly income you will need to meet those standards; then you must work out a budget that will create a sustainable income for you for the duration of your retirement.
Do not forget, however, that you should revisit your strategy each year to determine whether your goals are the same, your needs are consistent, and the monthly income generated was sufficient to meet those needs and reach those goals or if more significant income is required. In other words, you can make changes, to some degree, throughout retirement to accommodate things like rising health care costs, increased costs of living, and even decisions to move to areas that have lower costs of living.
Retirement Withdrawal Strategies
There are a few commonly employed retirement withdrawal strategies that serve retirees well, depending on their financial goals and other considerations. The one that will work best for you may not be the same one that works best for others. It may even require some degree of trial and error to decide which strategy you like best.
These are some commonly used retirement withdrawal strategies you might want to consider.
Takeaway
Some people employ multiple strategies, mixing and matching as needed to give themselves adequate income from year to year as expenses (cost of living, medical care, etc.) grow while helping them to set more money aside to help their money last longer. It may take a while to find your comfort zone or even working with an expert to find the best way to put your money to work for the retirement you’ve dreamed of.