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The Importance of a Good Withdrawal Plan

So, you’ve developed a financial plan for your future. You know how you’re going to accumulate the savings and investments needed to provide a comfortable retirement. But do you have a plan for withdrawing savings during retirement? If you don’t create a well-thought out plan for accessing funds from your accounts, you could lose savings to taxes or even run out of money.

Here are some things to keep in mind when developing your budget and withdrawal plan.

Budget for your future lifestyle. Your budget is a good place to begin in determining your monthly retirement withdrawals. Will you continue your current financial lifestyle? Adopt a more conservative approach? Or do you have goals that will require a higher budget? In addition to living expenses, include travel, entertainment and the possibility of life-changing events like marriage or health issues.

Know how taxes will affect your assets. Having assets in accounts that vary in terms of their tax treatment could be wise. Your assets likely fall into tax-deferred, taxable or tax-free categories. Knowing how your savings will be taxed is important when developing your withdrawal plan. For example, depending upon your circumstances and goals, it might be best to use the profits from taxable investment accounts first and later look to your tax-deferred accounts, such as a traditional IRA or 401(k). Most experts agree Roth IRAs should be the last account to tap, giving them as much time as possible to grow tax-free.

Know your required minimum distributions (RMDs). When you reach 70½, certain types of accounts require you begin withdrawing savings. If you don’t, the tax penalty could be as high as 50 percent of the required distribution. The rules for RMDs can be confusing. Your financial professional can help you understand them and avoid fees.

Just as it’s never too early to start saving for retirement, it’s never too soon to think about how you’ll withdraw from those savings in retirement. There are many approaches to withdrawal plans, but the best plan is based on your future goals and the kind of investment accounts you have. Call our office today at 602-242-4000. We can help you create a well-thought out withdrawal plan designed to provide peace of mind, protect your retirement assets and reduce your tax burden.

Advisors at Johnson Financial do not provide tax advice; coordinate with your tax advisor regarding your specific situation.

The Importance of a Good Withdrawal Plan

by Marcus F. Johnson, CFPⓇ time to read: 2 min