Financial Education Series
Retirement Withdrawal Strategies
Making Your Savings Last Through Retirement
How you withdraw from your retirement accounts is just as important as how you save for retirement. A thoughtful withdrawal strategy can help ensure your money lasts throughout your retirement years.
Why This Matters
Without a solid withdrawal strategy, retirees risk running out of money or being forced to significantly reduce their standard of living. Even small adjustments to your withdrawal approach can add years to your portfolio.
The 4% Rule and Beyond
Traditional Approaches
The 4% Rule
Withdraw 4% of your portfolio in year one, then adjust that amount annually for inflation. Historically, this has provided a high likelihood of portfolio survival for 30+ years.
Fixed-Percentage Withdrawal
Withdraw a fixed percentage (e.g., 4-5%) of your current portfolio value each year, allowing for adjustments based on market performance.
Floor-and-Ceiling Approach
Set minimum and maximum withdrawal amounts, allowing flexibility while providing income predictability.
Dynamic Strategies
Guardrails Method
Increase or decrease withdrawals based on portfolio performance, with predetermined "guardrails" that trigger adjustments when the withdrawal rate gets too high or low.
Required Minimum Distribution (RMD) Method
Base withdrawals on IRS RMD tables, which calculate withdrawals based on life expectancy.
Bucket Strategy
Divide assets into different "buckets" based on when you'll need them, with conservative investments for near-term expenses and growth investments for later years.
Tax-Efficient Withdrawal Order
Optimizing Account Withdrawals
The traditional withdrawal sequence below can minimize taxes, but your specific situation may require a custom approach:
Required Minimum Distributions (RMDs)
Take any required distributions from traditional IRAs, 401(k)s, etc., starting at age 73 (as of 2024). Failure to take RMDs results in a 25% penalty on the required amount.
Taxable Accounts
Withdraw from taxable brokerage accounts and bank accounts next. Consider selling investments with losses or minimal gains first to manage capital gains taxes.
Tax-Deferred Accounts
Next, tap traditional IRAs, 401(k)s, and other tax-deferred accounts beyond RMDs. Every dollar withdrawn is subject to ordinary income tax.
Tax-Free Accounts
Withdraw from Roth IRAs and Roth 401(k)s last, allowing these accounts to continue growing tax-free as long as possible.
Special Considerations
Key Factors
Social Security Timing
Tax Bracket Management
Healthcare Costs
Longevity Risk
Getting Started
Implementation Steps
Step 1: Inventory Your Resources
Create a complete inventory of all income sources, including Social Security, pensions, retirement accounts, and other assets.
Step 2: Estimate Retirement Expenses
Build a realistic retirement budget, distinguishing between essential and discretionary spending.
Step 3: Select a Withdrawal Strategy
Choose an approach that matches your risk tolerance, income needs, and legacy goals.
Step 4: Monitor and Adjust
Regularly review your withdrawal strategy and make adjustments based on portfolio performance, health changes, and lifestyle needs.
This content is educational in nature and updated as of 2024. Retirement withdrawal strategies should be personalized to your specific situation. Tax laws and retirement account rules may change over time. Please consult with a qualified financial professional before implementing any withdrawal strategy.