Your financial life, like climbing a mountain, does not end when you reach the summit, your retirement. Getting down safely, or making your income last, requires different strategies. How can you withdraw your money without depleting it? Here are a few tips:
Set a cash bucket aside.
You need a multiple-bucket strategy for your retirement. To supplement Social Security and any other noninvestment income, you want a bucket to hold cash of around two years of expected withdrawals. This way, you don't have to sell something while it is temporarily in decline.
Replenish the bucket when rebalancing your portfolio.
When stocks or bonds grow to be larger than their target weight, capture the gain and put it into the short-term bucket for upcoming expenses.
Make a spending plan.
Expenses can vary during phases of retirement — typically high in the early years as you do more activities, lower in the middle, then higher later because of health care costs. Your planning should accommodate all these expenses. If you withdraw 4 percent of your retirement assets, adjusted for inflation each year, you likely will not run out of money.
Mind the tax consequences.
If you withdraw money from tax-deferred retirement accounts, you owe ordinary income tax. A distribution from a Roth individual retirement account is tax-free; money from a brokerage account is subject to capital gains taxes. Large withdrawals can bump you into a higher tax bracket and increase your Medicare costs
Maintain a safety margin.
It pays not to cut things too close. Keep some money left over in case you live longer than you expect, expenses are higher or your investments return less than you plan for.
Gary Brooks, AdviceIQ