The transition from working and receiving a salary to being retired and living on your savings, and any other retirement income you may have, is a major one. It is likely to be the biggest financial adjustment you’ll face. How you manage your retirement assets may be a key factor in determining the lifestyle you’re able to enjoy.
Taxable accounts. Conventional wisdom suggests withdrawing money from taxable accounts first. The main rationale for tapping taxable accounts first is that it gives the assets in your tax-deferred retirement accounts more time to benefit from potential tax-deferred growth.
Tax-deferred accounts. Distributions from traditional IRAs, 401(k)s and other tax-deferred retirement plans are generally subject to income taxes. Ideally, you will be in a lower marginal tax bracket when you start withdrawing money from these accounts. At some point you must start taking annual required minimum distributions (RMDs).
Roth IRAs. Because Roth IRAs offer potentially tax-free earnings, you may want to consider keeping these accounts intact for as long as possible. The RMD rules do not apply to Roth IRAs during the account owner’s lifetime.
The possibility of outliving your assets is a real concern. How long will your retirement assets last? That depends on a number of factors, including the amounts you spend, your life span and the return on your investments.
How your assets are invested will be a key component of your financial plan during your retirement. Your financial advisor can help you develop an appropriate asset allocation for your investment portfolio and a withdrawal plan that suits your personal circumstances.
A combination of prudent planning and wise investment and tax strategies can help you successfully manage your retirement income — and ensure that your retirement goals will be met.
* An annuity may impose charges, including but not limited to surrender charges, mortality and expense risk charges, administrative fees, underlying fund expenses, and feature charges that can reduce the value of your account and the return on your investment. You will have to pay federal income tax on any earnings you withdraw from the annuity during retirement or before. Payments and guarantees are subject to the claims-paying ability of the issuing insurance company, and the underlying investment options are subject to market risk and may lose value.
Article is adapted from content provided by DTS.
