IRAs | 401Ks | Emergency Funds | Trusts | Roth IRAs | Annuities
If you’ve saved money to rely on when your working days are over, it matters when you decide to withdraw investments from each of your retirement savings accounts. Taking money out of the wrong fund at the wrong time could cost you thousands of dollars in income over the long haul.
Withdrawal mistakes makes money disappear quickly
You can start withdrawing money from some retirement accounts when you turn 59-1/2 without penalty, but that doesn’t mean you should. The law only requires that you start taking Required Minimum Distributions (RMDs) from Individual Retirement Accounts (IRAs) and other pre-tax retirement plans like 401ks and 403bs when you reach age 72. You’re wise if you wait until then. The 10 years or so you leave that money unused gives it time to keep growing and compound. If you plunge right into those savings, you could lose hundreds, maybe thousands, of dollars.
In some circumstances it may make sense to start drawing sooner rather than later. If you are in a lower tax bracket or if you can draw from your retirement while waiting to draw a higher benefit from social security.
Another way to deplete your future resources too soon is by running up big IRS bills in your first years of retirement. You’ll have to pay taxes on all your regular IRA withdrawals, so you’re wise to take out only what is required annually . . . and take the rest from tax-free investments. Tax planning in retirement is vital!
Mandatory doesn’t mean first. However, many folks do take their mandatory IRA deductions first, (some as early as January each year). Biting their cheeks, they rationalize that they have to dip into those accounts, anyway . . . so “Let’s get it done right away,” they say.
However, taking out mandatory money first is not always the wisest move. If your investments are down in value early in the year, wait for more bullish times to make any withdrawals, mandatory or not. Cash in only investments that are high in value at the time you need to withdraw them.
Plan ahead . . . and withdraw wisely to stretch funds further
In your retirement years, it’s more important to have a budget or an annual spending plan than at any other time in your life. If you mark a calendar with a whole year’s expenses, including property taxes, holidays or vacations, you’ll know months in advance exactly how much money you’ll need each year. Then, you can watch and wait until the right times to cash in your investments.
If you don’t plan ahead, you’ll be forced to withdraw money at the last minute when payments are due. At that time, though, your investments may be lowest in value. Selling at the wrong time costs you more and can deplete your savings quickly. Retirees who don’t keep track of market ups and downs should find a financial advisor who does. You could save thousands over the years by requesting that your advisor alert you when to withdraw both mandatory and discretionary funds. That is . . . when they’re highest in value.
For more withdrawal advice from a certified financial planner, email firstname.lastname@example.org
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