When you’re planning for retirement, one of the most important things to figure out is how you’ll withdraw your money. If you don’t do it correctly, you could end up with a lot less money during your retirement than you expected, which can be very frustrating and stressful down the road.
This blog post will walk you through five steps to creating a retirement withdrawal strategy that works for you.
How Much Money Will You Need?
The first step is to decide how much money you’ll need each year in retirement. This number will be different for everyone, depending on your lifestyle and other factors. Once you have a number in mind, you can start planning the rest of your strategy around it.
When deciding on this number, keep in mind how much your groceries, bills, and anything else you are required to pay (including taxes) cost you each month and year. It is important to include these numbers in your budget.
What is Your Budget?
The second step is to create a budget based on your needs and wants. Creating your personal budget now will help you figure out how much you can realistically withdraw from your savings each year during retirement, saving you a lot of stress later.
Keep in mind that your budget should be flexible, as your needs may change over time. Many experts suggest that 55% to 80% of your current pre-retirement income is a reasonable budget for retirement, so try to come to a number around this amount.
Accounting for Inflation in Retirement Withdrawal Strategies
The third step is to account for inflation when planning your retirement budget.
It is essential to account for inflation when planning for retirement because the cost of living will increase over time. This means that you will need to have more money saved in order to maintain your current standard of living once you retire than what you current budget is.
Tax-Efficient Retirement Withdrawal Strategies
The fourth step is to withdraw money from your retirement accounts in the most tax-efficient way possible. It would be best to take into account things like RMD (Required Minimum Distribution) and other tax laws.
RMD is the amount of money that you are required to withdraw during retirement, which can be exceeded in withdrawals made. This withdrawal would take money out of your employer-sponsored retirement plan, traditional individual retirement account (IRA), simple IRA, or simplified employee pension (SEP).
The age for withdrawing from retirement accounts is 72 as of January 2020. Account holders must begin withdrawing from their retirement account(s) by April 1 of the year after they reach 72 years old and continue to do so each year afterward.
If you have multiple retirement accounts, it is usually required that you must calculate the RMD for each separate account and withdraw each RMD. Withdrawing money in the most efficient way possible will help you keep more of your hard-earned savings.
Review Your Retirement Withdrawal Strategy Regularly
The fifth and final step is to review your withdrawal strategy regularly. Reviewing your strategy often will help you ensure that your strategy is still aligned with your goals. Retirement planning is an ongoing process, so it’s important to continually revisit your strategy to ensure it is still working for you.
Consult a Tax Professional
We hope this blog post will help you get started with creating a retirement withdrawal strategy that works for you! If you have any questions, please feel free to reach out and connect with us by scheduling an appointment.
Visit our website at ironpointfin.com for retirement planning resources!
We serve the Grove City, Greenville, Erie, Cranberry Township, and Boardman, OH areas.