At retirement time, it’s sometimes difficult to know where precisely money should be withdrawn from to meet your monthly needs. Let’s say you reach retirement, and perhaps you have an IRA, a company savings account, a brokerage account, and maybe even some savings.
Maybe your monthly needs are in the $4,000 range, and you’re wondering: “Which account should I withdraw from?” Do you take it from the IRA? Do you take it from the brokerage account? I’ve seen a lot of people just assume that they will withdraw the money from their non-taxable accounts first, and let their retirement accounts continue to grow. That might be fine, but you also may find that a few years down the road when you are forced to take required distributions, your tax burden might become unbearable. Throw in Social Security, which is taxable for some, but not all recipients, and then consider how a withdrawal from your IRA can actually cause your Social Security to be taxed at a higher rate, and then you can begin to understand the complexities and nuances involved with proper planning.
At this stage of life, it’s important to have a really good financial strategy in place.
As a guideline, most of the retirees that I meet with are best served by drawing income from a combination of sources. If you have a brokerage account, some money in retirement plans, and some savings, in order to minimize your tax burden, and maximize your savings, it probably makes the most sense to take some income from each.
If you have money in more than one retirement account, the best way to ensure that you are minimizing your tax burden, while maximizing yours savings, is to work with a trusted, qualified, credentialed advisor who can keep you abreast of your options, while helping you devise a long-term plan that works for you.