You have made it to retirement and are ready to tap the myriad investments you have accumulated during your lifetime. Hopefully, you have been diligent and saved money in the traditional three investment buckets: taxable, tax-deferred and tax-free. So, which do you tap first? Is there a general rule of thumb? Could the general rule be different for people in different situations? The answers to the last two questions are ‘yes’ and ‘maybe’.
A general rule of thumb is that investors should first draw from their taxable accounts immediately after retirement if they are in a lower tax bracket year. This could help you somewhat avoid a tax bite. Next, investors should look to their tax-deferred accounts. These accounts likely have minimum distribution requirements at a certain age (think IRA and 401(k) at age 70 1/2). Lastly, investors should consider drawing from their tax-free accounts (think Roth). Don’t forget that this strategy may very well be impacted by whether you are still working, already taking Social Security, or opting to delay Social Security. Working with your adviser is key to knowing the lay of the land ahead and drawing strategically from your investments. You also need to calculate how much to drawdown and that can be a real challenge.
Of course, every situation is different and you should consult with an adviser to figure out the advantages of using the rule of thumb approach or executing a more customized drawdown strategy based on your personal situation and funds needed. If you are not sure why this general rule applies or if it might help you, contact me and we can discuss your situation.
As an independent Certified Financial Planner™, I can help you decide how to start enjoying your retirement savings and in what order. In addition, I can help you make decisions and layout a plan for spending in retirement. No matter where you are in life, a CFP® professional can help you create a financial plan for today and tomorrow. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #retirement #income #drawdown #IRA #401k #CFPPro #LetsMakeAPlan