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Retirement Withdrawals: Finding Your Optimal Amount


Dear reader,

One of the most common issues retirees face is the distribution phase. You and your wife have accumulated a taxable account totaling $2.3 million and retirement assets totaling $2.2 million. Now you’re wondering about the best way to take distributions so you can retire at 55.

Of course, you won’t touch your qualified money until you reach 59½. You understand the 4% rule, but you’re still unsure whether to set a monthly, quarterly, or annual withdrawal, or take a lump sum instead. Timing the market can be an overwhelming task.

For decades, Americans are told to save for retirement, but then they get to the point where they need to start using the money…and that can be a complicated process. Retirees need to have an idea of how much to withdraw, what that distribution’s impact will be on the rest of their nest egg, what to expect come tax time and how not to use that money too quickly.

There is no one-size-fits-all solution when it comes to retirement planning. The answer largely depends on individual circumstances.

So what is the best course of action for you? Let’s dive in.

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Retirement savings can be tricky to manage, especially when you’re trying to determine the optimal amount to withdraw each year without exhausting your funds too quickly. While the 4% rule is a popular guideline for many retirees, this rule isn’t always a perfect fit for everyone.

Some people may find that 4% is too much to withdraw each year, while others may not be able to afford their retirement lifestyle on that amount. In fact, experts have argued that the 4% rule may not be suitable for everyone; for instance, retirees could use a rate of 3.3% and still have a 90% probability of not running out of money in retirement, according to Morningstar.

So, how do you determine the optimal withdrawal rate for your retirement savings? One helpful tip is to do some quick calculations to estimate how much you expect to spend in retirement, including a buffer for unexpected expenses. Then, compare this total to the percentage of your total retirement savings that the 4% rule recommends you withdraw each year.

If you find that the 4% rule will enable you to withdraw more than you need, consider retaining more of your retirement assets instead of withdrawing the full recommended amount. The less you withdraw each year, the more money you’ll retain in your accounts, which could continue to grow over time.

It’s also important to be aware of something called “sequence of returns” risk, which occurs when your portfolio value drops too quickly at the beginning of your distribution journey. This can significantly impact your account’s long-term growth potential, especially if you’re withdrawing more than you can afford to lose.

By taking the time to weigh your options carefully and plan your retirement withdrawals strategically, you can ensure that your retirement savings go the distance.

Retirement Planning: Making the Most of Your Savings

Planning for retirement can be a daunting task, especially when it comes to managing your finances. While there are many factors to consider, it’s important to pay attention to the tax implications of your decisions. Consulting a qualified financial planner and/or an accountant can help you run the numbers and make informed choices.

Roth conversions can be beneficial as your taxable income drops, and they’re also a way to avoid required minimum distributions later on. It’s worth taking the time to get into the granular details to maximize your retirement savings.

One crucial issue is when to access your retirement assets. Remember that most retirement account assets become available penalty-free after you turn 59 ½ years old. However, there are exceptions to this rule, such as the “55 rule.” If you’re 55 or older and have separated from your job, you may be eligible to withdraw from a linked retirement account. Check with your employer about any restrictions that may apply.

When it comes to distributing funds, consider pulling six to 12 months’ worth of expenses into a money-market account and creating a “paycheck effect.” Setting up regular monthly or biweekly distributions can help you stay within your budget and replicate the feeling of still working. Talk to a certified financial planner like Brian Schmehil, managing director of wealth management for The Mather Group, for more guidance on managing your retirement savings.

Retirement Strategies for Those at 55

Retiring at 55 certainly has its advantages, including the potential for more leisure time and a chance to travel. However, there are also considerations that should be taken into account before making this decision. One major factor that needs to be addressed is how to manage your retirement savings to ensure that they last throughout your retirement.

A key approach is to use accounts with shorter investment horizons and to invest in less risky investments. This strategy will allow you to continue to spend without having to be overly concerned with market volatility. The bucket approach, which divides your assets into various investment horizons, is also worth considering. The least risky investments should be in your shorter-term “bucket,” with riskier investments earmarked for the long term.

To control spending, creating a monthly distribution schedule can keep expenses in check. It can also help to keep track of a monthly budget, especially if you have a tendency to overspend.

It’s important to keep in mind that there are many variables that can affect your retirement savings, including changes in your retirement money sources, tax liabilities, inflation, and risk tolerance. As you age, your financial priorities may shift, and you may need to adjust your withdrawal frequency accordingly.

Retiring at 55 can be a great choice, as long as you take care to plan for the future and protect your retirement savings.

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