When you retire, which you can do as early as 59½, you have the privilege to start making withdrawals from your retirement accounts. The more accounts you have earning interest, the more it matters how you withdraw your money.
Your Goals Will Help Determine Investments
When you make your retirement plans, you may decide to move, travel, develop new hobbies, and other things that may be costly. These plans mean you will likely need more money early in retirement. The need for money may help determine some of your investment strategies and withdrawals.Annuities
Annuities can be an excellent way to get a consistent source of income for a long time. Although the income will be regular, accessing more money from an annuity may be difficult. Annuities come in different forms—such as with fixed interest or adjustable rates based on the market.401(k) and IRA Withdrawals
Withdrawals from retirement accounts, such as 401(k)s and IRAs, must begin when you turn 73. They can be made annually or monthly, depending on your need. If you only need an annual withdrawal, your money will earn more if you withdraw near the end of the year, which gives your money time to grow more interest. You will also have to pay taxes on your withdrawals.A strategy to keep more of your money during your retirement years is to roll over some of your money from 401(k)s or IRAs into Roth accounts. When you do, you must pay taxes on the rolled-over amount, but Roth accounts do not have RMDs. You can access the money in those accounts when you need to—or let it grow.
The 4 Percent Withdrawal Strategy
One of the most common withdrawal strategies is the 4 percent guideline. Fool says this strategy involves withdrawing 4 percent of your retirement account balance in the first year. In the following year, you would withdraw the 4 percent plus an amount equal to the year’s inflation rate.A potential problem with this strategy is that when it was first made, interest rates were more stable than they are now. Following the 4 percent guideline may cause issues and reduce your overall amount—which could mean running out of money earlier than expected—if some years have lower-than-expected market performance.
The Bucket Strategy of Withdrawals
The bucket strategy divides your retirement savings into three buckets: short-term, intermediate-term, and long-term. These buckets cover periods in your life that are likely to require different amounts of income. The short-term bucket covers the first five years, the intermediate-term bucket covers the following five years, and the long-term bucket covers anything after the first ten years.The Dynamic Withdrawal Strategy
When you start the dynamic withdrawal strategy, you calculate what you need as a minimum each month and a maximum that you will withdraw. When the market performs well, you can withdraw more but stay under your ceiling. When the market performs poorly, you take out less—but never lower than your minimum.Determining Your Strategy
Before you choose a strategy to take out retirement withdrawals, take inventory of all your potential sources of income during retirement. Next, calculate how much money you need after taking out your RMDs—unless you want to wait until you are 73. Taking some money out early from your retirement accounts enables you to pay less taxes because it will put you into higher tax brackets later as it grows.Waiting until you turn 70 to take Social Security will give you the most money. This strategy also enables you to need less money from other sources during retirement.
When you make your retirement plans, get information that best fits your situation from a financial advisor or estate planning lawyer. They can help you create a strategic plan for a more comfortable retirement.