You’ve spent years planning and saving for retirement. But have you thought about what you’ll do with those savings once you retire? Now may be a good time to look at your assets and how you can make them work to give you the retirement lifestyle you want. Here are some strategies to consider.
One strategy that may help your retirement assets last longer is to take withdrawals from any savings and investments you have in taxable accounts first. By leaving your money in tax-deferred accounts, such as your employer’s plan or an individual retirement account (IRA), you’ll delay the taxes that will be due on withdrawals and continue to take advantage of opportunities for tax-deferred compounding.
Regardless of where you take your money from, you should think about how you’re going to take withdrawals. Your retirement assets need to last your lifetime. If you withdraw too much money too soon, your savings may not last as long as you need them. But you don’t want to be so frugal you can’t enjoy retirement. Also consider that taking a large withdrawal in a month when the investment markets are down could seriously deplete your assets. Your savings may not be able to recover sufficiently to meet your later needs.
One way to avoid depleting your invested assets is to withdraw only the earnings on those assets. For most people, though, this approach won’t provide adequate income. The accompanying table illustrates another potential strategy and the importance of choosing a reasonable withdrawal rate.
