How Much to Withdraw During Retirement?

The 4 % Rule

 

Four Percent Retirement Rule

Four Percent Retirement Rule

The purpose for the 4 % rule was to insure that a retiree would not run out of assets during retirement years.

The real question is how much to withdraw during retirement? What if you want a higher life style that the 4 % rule would allow?

The main adjective for the rule was to determine an appropriate amount for retirees that is low enough to survive the worst return sequences that can be found historically.

The percentage of annual return that your investments return will determine how much you can withdraw safely at retirement. The annual return can change from year to year, so your annual distributions from your retirement accounts could be adjusted annually.

The purpose of controlling your distributions is to allow for changes in inflation, cost of living and your investment returns.

Personally I control my retirement distributions, by the annual amount of inflation, tax considerations, current cost of living, my portfolio rate of return and setting a budget.

I cannot stress enough how important it is to maintain a reasonable budget, a budget that can be modified as needed.

Don’t forget the tax consequences of pulling money from your 401k and traditional IRAs. The withdrawals will be considered ordinary income and taxed at your current tax rate during retirement.

Of course if you choose to invest in a Roth IRA or Roth 401k account, your withdrawals will be tax-free. Don’t forget you can also convert all or a portion of your IRAs and 401k plans into a Roth account.

You will pay taxes at the time of conversion, however moving forward any gains in your Roth will escape taxation. One strategy would be to do a partial conversion stretching over a period of years, paying taxes as you go.

I highly recommend you seek professional tax and investment advice before implementing any strategies.

Weekly Financial Quote – There is a very real danger that financial regulation will become a wolf in sheep’s clothing.

Henry Paulson

 

Daniel F. Iuculano, AAMS CMFC

Accredited Asset Management Specialist

Chartered Mutual Fund Counselor

Comments are closed.