Retirement is a major financial challenge for many workers. In fact, according to a study from Gallup, it’s the top financial worry for 54 percent of Americans.1 They’re concerned that they won’t be able to save enough money to fund their desired lifestyle in retirement.
Retirement planning isn’t just about saving, though. While it’s important to accumulate assets during your working years, you also need a plan to make those assets last throughout retirement. It’s possible your retirement could last decades, so you’ll need a strategy to make sure you don’t outlive your money.
If you’re like many Americans, you’ve used qualified accounts such as IRAs and 401(k)s to save for retirement. Those accounts are helpful because they offer tax-deferred growth and other favorable tax benefits. Without a clear plan in place, however, your qualified accounts could generate taxes and other complications.
Below are a few helpful tips for your retirement withdrawal strategy. If you don’t have a plan in place, now may be the time to create one.
Align your withdrawal amount with your spending needs.
Conventional advice is to take a flat percentage of your assets as an annual withdrawal in retirement. For example, you might take 4 percent of your asset balance and divide that amount into monthly distributions.
The problem with this strategy is that it may not be the right approach for your unique needs. Instead, create a detailed retirement budget. Include any other income sources, like Social Security or pension benefits. If those income sources don’t cover your expenses, you can use withdrawals from savings to make up the difference.
This approach helps you withdraw only the amount you actually need to fund your lifestyle. That amount could be less than a flat 4 percent withdrawal. This strategy also may help you better track your spending and make changes when necessary.
Don’t forget taxes.
Taxes don’t stop just because you stop working. In fact, you could face tax liability on a wide range of income sources, including Social Security and pension benefits. Distributions from most qualified accounts are considered to be taxable income.
It’s wise to remember taxes as part of your income strategy. Sizable distributions could bump you into a higher tax bracket. You may want to make use of other account types, like a Roth IRA, which can generate tax-free income. Also consider life insurance cash value as a possible tax-efficient income source.
Consider guaranteed* income strategies.
The primary retirement withdrawal challenge is developing a strategy that makes your assets and income last throughout your entire lifetime. That can be difficult, since you don’t know exactly how long you will live.
Fortunately, there are tools available that allow you to create income streams that are guaranteed for life, no matter how long you live. For example, annuities offer a variety of different guaranteed income strategies. You may want to consider using an annuity as part of your retirement income plan.
Ready to develop your income strategy? Let’s talk about it. Contact us today at Thomas Financial. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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