In this episode, we will discuss how to withdrawal money while you are in retirement to fund your lifestyle.

  1. How to withdrawal with keeping taxes in mind
  2. Withdrawal strategies
  3. Withdrawal in different market environments – bull or bear

 

Show Notes:

Always consider taxes when withdrawing money.  Are you pulling from a pre-tax (traditional, post-tax (roth), or a taxable account (long-term or short-term gains). Do you have side income from a part-time job, pension and/or social security that you need to factor in?

What do you need to identify?

  1. What are your income needs
  2. What is your tax situation=

What are your income needs.  The importance of tracking your spending of both fixed and flexible comes into play here.

Do you have money from part-time work, pension, and/or social security to offset what you need from your investments?  Then you know exactly how much you need from investments on monthly/yearly basis.

Yo will pay federal/state income tax on pre-tax accounts unless in a state where it doesn’t tax income because its taxed as ordinary income like your job would have been.  The same goes for qualified annuities and cash value life insurance.  Will be taxed as ordinary income.  

Can have amount withheld for both federal and state if you choose to when taking it out of your account.  I would recommend this. This is what happened when you had a job and look at it the same way now when pulling money out of your pre-tax accounts.

Can withhold taxes if you have a pension, social security, pre-tax (traditional) accounts.  For example, if you live in Iowa a strategy might be to withhold 10% federal and 5% state. Consult with tax accountant for your personal situation and to get more accurate withholding strategy.

Example:

  • You need $1,445 per month from your investments to add to your fixed income (part-time job, pension, Social Security, etc.) to pay the bills.

 

  • The accountant advises you to pull from a qualified account because you will stay in the 12% marginal tax bracket with your $12,000 in withdrawals.

 

  • You pull $1,700 from your Traditional IRA, withholding 10% in federal tax and 5% in state tax giving you $1,445 per month in your bank account.

 

  • You pull the funds from a Short-Term Bond Index Fund based on the low volatility of the fund. You rebalance later in the year as needed.

Withdrawal Techniques in detail

Only need money on occasion  – option when your other income is enough to pay the bills and this is for taking a trip, one time bill or purchase, etc.

Want money delivered monthly – Think of this like a paycheck each month as you had with your regular job before you retired.  Can be from a money market or short-term bond fund – I like those two options for a savings vehicle instead of money in the credit union / bank not earning very much.  Can set this up to happen automatically each and every month.

1 year option – keep the amount that you want i.e. using the $24,000 example from previously and have that much in your money market / short-term bond account

Multiple year option – Take the 1 year option and just multiple it by the number of years you would like to have in that vehicle.  Understand the more you put here the lower your overall return will be. I wouldn’t go more than two years.

 

May seem counter intuitive but you want to pull from the asset(s) that are up.

I.e. if stocks are up or if bonds are up

Look at your different buckets as employers when your withdrawing money

Call to Action: 

Define your current plan to withdrawal from your investments.  Is it clear. Is it thought through no matter the market environment.  Stay the course. See out help if needed. Even if for a second one-time opinion.  

Resources:

Check out this episode!