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Retirement Asset Withdrawal Strategies for a Stable Future

Retirement Asset Withdrawal Strategies for a Stable Future

| April 16, 2024

Perhaps you’ve spent years building up a substantial retirement nest egg by diligently saving. Or maybe you’ve amassed a large amount of savings through other means. Regardless of how you’ve accumulated your wealth, it’s essential to approach the next phase of your financial journey strategically so your savings can go the distance.

Now is the perfect time to leverage your hard-earned savings and establish a reliable income stream for your golden years. But navigating the complexities of new tax regulations and financial decisions can be daunting because tax rules are always changing. For some guidance, let’s explore a few pitfalls and retirement asset withdrawal strategies to keep you on track.

Tax Rules 

Believe it or not, there are more tax rules to consider in retirement than there are when you’re working. And each decision you make affects more decisions—it’s like a domino effect.

An example: It’s important to have the right balance between tax-deferred accounts (like a 401(k) or IRA) and tax-free accounts (like a Roth IRA). If you don’t have a good balance and want to move things around, you could consider a Roth conversion, where you convert a portion from a tax-deferred account into a Roth IRA. 

However (and here’s where that domino effect kicks in), if you do that, not only can it affect your income taxes for the current year, it could also impact how much you pay in Medicare payments, and how much tax you pay on your Social Security benefit.

There are a lot more moving parts to consider just like this one. One mistake or overlooked decision could result in an unexpected tax bill. But there’s hope. It is possible to actually lower or even wipe out taxes during retirement.

Portfolio Diversification

I’ve seen many retirees limit their portfolios to stable investments like bonds and CDs. My professional opinion is that it’s more important to maintain a balanced asset allocation during retirement. 

Given the historically low returns of CD and bond investments, the unpredictability of inflation, combined with whatever distributions you’re already planning to take, you’re putting yourself at major risk of running out of money during retirement if you don’t diversify.

Withdrawal Order

There’s a specific order for withdrawing income from your retirement accounts without jeopardizing your future. 

A smart way to do that is to carefully analyze your distribution plan if you have money in taxable, tax-deferred, and tax-free accounts. This helps you make wise tax decisions this year, and then apply that knowledge to your income strategy 10 years from now.

In other words, while taking money from one account right now might seem like a good idea, you should consider how that decision might play out in 10 years. 

Longevity Risk

It’s time to think about what would happen if you outlived your retirement savings. The human lifespan is getting longer, and making your savings last throughout your lifetime is essential.

A professional retirement planner can help you, working with you to find a sustainable withdrawal rate, a smart investment strategy, and suggestions for when to withdraw Social Security. All these decisions can affect your odds of having enough money throughout your lifetime.

Social Security Decisions

While it might be tempting to withdraw your Social Security benefits as early as possible at age 62, the sooner you start, the lower your benefit amount. It’s important to consider the long-term effects of that lower amount, and how it could potentially impact your lifestyle during your 70s, 80s, and 90s.

Additionally, if you’re still working and receiving a paycheck and you withdraw Social Security benefits, there are significant tax ramifications to consider—and even more when you add a Roth conversion into the equation.

Choosing the Right Medicare Plan

Thinking about retiring before age 65? Remember that Medicare doesn’t kick in until 65, which means you’ll need health insurance to fill the gap until Medicare is available.

Also, you’ll have a new set of decisions to make once you’re eligible to sign up: you can sign up for the Original Medicare (parts A and B) or a Medicare Advantage plan. 

If you choose Original Medicare, additional decisions include which Medicare Supplement plan you’ll need. Each option has a variety of variables, including price, coverage areas, co-pays, and deductibles. 

Keep in mind that if you don’t enroll in the right time frame, Medicare actually penalizes you with higher premiums for the rest of your life. It gets even more challenging if you work past age 65 and get health insurance coverage from your employer.

Get the Guidance You Need

Keep in mind that these rules and regulations can change with each new session of Congress. That’s quite a lot to stay on top of.

Take the time to properly strategize your retirement finances so you can gain confidence in your financial future. Let Premier Planning Group handle the complexities while you enjoy your retirement. We’re here to simplify the process so you can spend time doing what matters most.

Contact us by calling our office at (443) 837-2520 or emailing my executive assistant, Talia Grover, at taliagrover@premierplanninggroup.com to set up a complimentary consultation.

About Brion

Brion Harris is the CEO, founder, and managing partner of Premier Planning Group, an independent financial firm specializing in working with pre-retirees and retirees, helping them create customized wealth preservation and retirement distribution strategies. With over 20 years of experience, Brion has developed deep knowledge and skill in helping his clients simplify their finances and find confidence in their financial future. Brion and the Premier Planning team are known for their unparalleled client service and their dedication building long-lasting relationships with their clients. As a result, Brion has been the recipient of the #1 Advisor Leadership Award* at Summit Brokerage Services for eight years running and has a reputation as one of the top retirement advisors in the business. 

Brion is a proud 20-year resident of the Annapolis community, where he resides with his wife, Elizabeth, their three children, Addison, Jay, and Scarlett, and their two dogs, Pepper and Coco. When he’s not working, you can find him boating, skiing, traveling, and enjoying good food and music with his family. If you want to learn more about Brion, connect with him on LinkedIn.

*The #1 Advisor and Leadership Award is based on production data while at Summit Brokerage Services, Inc. Brion Harris received the award in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021. This award is not a guarantee of future investment success. This recognition should not be construed as an endorsement of the advisor by any client.