Rules for Withdrawing Money From Your Retirement Accounts


Rules for Withdrawing Money from your Retirement Accounts

Most retirees need to withdraw money from your savings and retirement accounts to fund living expenses and enjoy their retirement lifestyle. Withdrawals can be monthly, quarterly, annually, or just whenever a spending need arises. Here are a few simple rules for organizing your assets up to help make those withdrawals function efficiently in your investment portfolio.

  1. Determine how much you need to withdraw to fund your retirement lifestyle. If you’ve been retired for a few years, look back and see how much you’re spending on a regular basis. If you’re new to retirement, or planning to retire in the near future, carefully track your spending for at least three months to establish a baseline for projected future spending. Next, add up all of your regular sources of income such as pensions, Social Security benefits, rental income, and Veterans benefits, to name a few. If your spending exceeds income, you have “The Gap”. The Gap is funded through withdrawals from your savings and investments.
  2. Anticipate big ticket spending items in the near future. Are you going to tackle that bathroom remodel next year? Buy a new car when the new model year comes out? Planning for big spending items, and the resulting withdrawal from your savings and investments, is just as important as determining your routine lifestyle expenses when establishing an efficient withdrawal plan.
  3. Move three years’ of spending out of investments into a safe, secure credit union account. Money that you are absolutely going to spend during the next three years should be in an insured credit union savings account. The money you need to pay bills, buy food, pay property taxes and fund life’s enjoyment should not be subject to fluctuations in value. With this “bucket” of money you take no risk of losing principal. Three years’ spending is a rule of- thumb for most people. If you’re on the more conservative side you may feel better with four or five years’ spending in an insured credit union account.
  4. Position some of your investment assets for growth potential. After you’ve secured your near term spending, determine how much you’ll need to grow your money to maintain your lifestyle in the future. Social Security has an annual Cost of Living Adjustment (COLA) designed to help your benefits keep up with inflation. If your withdrawals are funding basic lifestyle spending needs, you’ll need to plan for increased withdrawal amounts over the years to accommodate even mild inflation of prices. Increased life expectancy means your money may need to fund 30 or more years of retirement and the potential for 30 years of inflating prices of basic lifestyle expenses. According to the Bureau of Labor Statistics, the 50-year average for inflation of the Consumer Price Index is 4.22%. A $500 monthly withdrawal to pay for living expenses can more than double to $1,097 in just 20 years at a 4.22% annual inflation rate.
  5. Look for yield in your mid-term investments. With the money you will spend in the short term safely deposited in an insured credit union account, and your long term money invested for growth potential, look for investments with yield for your midterm investments. In today’s low interest rate environment, this can be a challenge. Seek as much yield as possible without exposing yourself to unnecessary risk to the principal you’ve invested. Interest earned on these mid-term investments can be transferred to your short term insured credit union account where they can be withdrawn to fund spending. Find a financial advisor who is well versed in this “bucket investment strategy” who can help you select investment products appropriate to your own needs and your time horizon for spending your savings and retirement investments. An advisor using this strategy can help you identify investments that offer the potential to grow the value of your assets in the long term growth inflation fighter “bucket.” Contact us for an appointment so we can show you how these rules can help solve your financial challenges in retirement.

Bucket Investment Strategy

bucket investment strategy

This is how the Bucket Investment Strategy matches your planned spending with your retirement investments. Near term spending dollars are kept available to you in an insured credit union account. Money you do not plan to spend for many years can be invested for growth potential to help offset the consequences of future inflation.

Questions or comments regarding this article? Kurt would love to hear from you! To schedule a complimentary personal consultation with Kurt, please contact him directly at 812-253-6928 ext. 2453 today!

Kurt DeckerKurt Decker
Financial Advisor
812-253-6928 ext. 2453
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