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Help Make Your Retirement Savings Last a Lifetime

Consider various strategies for withdrawing your savings

Once you’ve estimated your retirement expenses, determined your retirement income sources, and started a strategy for investing your income sources, the next step is to understand various strategies for withdrawing your retirement savings and decide which withdrawal options make sense for your situation.

Four basic withdrawal strategies

The following is an overview of 4 basic strategies for choosing a withdrawal method. It's important to know that there is no single superior approach to structuring portfolios to better facilitate withdrawals. The method you choose will depend on your personal situation.

Income only - only interest and dividends generated by your portfolio are distributed, and the principal is not touched.

Total return - your portfolio is invested according to your asset allocation guidelines and rebalanced periodically to maintain this allocation. You determine what percentage you want to withdraw at periodic intervals to provide income. 

Income floor – you establish a minimum amount (or "floor”) of income that supports your essential spending. This strategy is geared towards generating enough income from lifetime income sources, such as Social Security, pensions, and annuities, to cover essential living expenses. Discretionary spending, like travel, is typically drawn from other income as well as an investment portfolio. 

Bucket strategy – your overall portfolio is divided into separate investment pools (or “buckets”) designed for specific purposes. Each pool has its own investment goals, strategies, etc. This approach can be less daunting than trying to create a sustainable income stream from a single large portfolio.

What withdrawal method is for you?

When choosing a withdrawal method, keep in mind:

  • Your estimated expenses — How much you plan to spend each year in retirement
  • Your longevity — How many years you could potentially spend in retirement
  • Your lifetime income sources — The total amount you expect to receive from lifetime income sources (e.g., Social Security, pensions, annuities, insurance)
  • Your investments — The total amount of your personal savings (e.g., IRAs, 401(k)s, 403(b)s, 457 accounts, savings accounts, and CDs)

Depending on your personal expenses, longevity, and income sources, you may consider changing your withdrawal strategy to meet your needs. Once you’re retired, it’s important to review your retirement income plan — at least annually,or whenever your circumstances or the markets significantly change so you can adjust your spending strategy and withdrawal rate as needed.

Develop a tax-efficient strategy for withdrawals and RMDs

In addition to determining a suitable withdrawal rate, you also need to decide the best order to withdraw funds from your investment portfolio to help minimize retirement taxes. Internal Revenue Service regulations require that owners of retirement accounts — including IRAs and qualified employer-sponsored retirement plans (QRPs) such as 401(k), 403(b), and government 457(b) — must begin taking distributions annually from these accounts. These distributions are referred to as required minimum required minimum distributions (RMDs). Generally RMDs begin by April 1 following the year you reach 70½, and annually thereafter. Be sure to factor RMDs into your withdrawal strategy.

Although your distribution options vary based on your age and the types of accounts you own, a commonly used strategy is to withdraw money in an order that allows your portfolio to continue experiencing tax-advantaged growth potential and minimizes retirement taxes. But, because every situation is different, your financial and tax advisors are best equipped to help you determine the most appropriate withdrawal strategy for you.

Simplify your finances by designating a single retirement income account

While working, most people receive a predictable paycheck. Your retirement income, however, can be more cumbersome to monitor because your income may arrive at different times and vary in amount. For example, you may receive Social Security at the beginning of each month, your pension payment at mid-month, dividend payments every quarter, and RMDs annually.

There are various methods for withdrawing money to “pay yourself” in retirement, but regardless of the method you choose, be sure to consider ways to simplify your cash flow. For example, designate one account for managing your retirement income, such as a checking account, and then:

  • Directly deposit your retirement income payments into your primary account
  • Set up regular withdrawal amounts from your equity and fixed income investments, and move them into your primary account automatically
  • Automatically sweep quarterly interest and dividend payments into your primary account
  • Maintain a cash cushion in your primary account so you’ll have enough money to cover your expenses

Your retirement income account

 Tip 

Maintaining several retirement accounts?

If you have multiple retirement accounts with various financial institutions or former employers, it’s important to know your options.  We can help.