Financial Wisdom for Retirement

Share on facebook
Share on twitter
Share on linkedin

It Isn’t Just About Saving Money

For most of your adult life, the importance of saving for retirement has been drilled into your head. But saving money for retirement is only half the process. Developing a plan for using your retirement funds effectively is equally important, especially as you near retirement age.

There are many different approaches and strategies for using your retirement money most effectively. In order to develop a plan that will be best for you, the first step is to take inventory of what you have. It is best to do this before you need to start receiving benefits. As you develop your plan, you may wish to make some adjustments to your portfolio. Your retirement income will likely come from a combination of IRAsannuities401(k) plansRoth IRAssocial security benefits or pensions, and possibly other investments. The rules about when you can withdraw money, how taxes are assessed, and how much you can (or have to) withdraw vary. Be sure you know the rules of your investment types.

Required Minimum Distributions

As you develop your strategic plan for retirement, required minimum distributions (RMDs) will play a key role. Once you reach age 70.5, you are required to start withdrawing money from your tax-deferred investments, like your IRAs. Your financial advisor can help you calculate your RMD, or you can use tables provided by the IRS. If you do not withdraw the full amount by the deadline, there are hefty tax penalties. You will be charged 50% of what you should have taken out but didn’t.  

Since it is called a required minimum investment, you may be thinking, “How can I use it strategically?” One way is to time your RMD withdrawals right. The first RDM isn’t due until April of the year after you turn 70.5, but all other years the RMD is due by December 31. Avoid taking two in the same year, as it might bump you into the next tax bracket. Also, simply being sure to take your RMDs before the deadline ensures you bypass unnecessary—and expensive—penalties. Some people choose to automate their withdrawals to be sure they never miss a deadline. Another timing strategy some people use is to start withdrawing money from their tax-deferred investments in their 60s to spread out the tax bill and possibly stay in a lower tax bracket, thus reducing their lifetime tax bills. There certainly are rules involved, but there is still room for strategy.

Withdrawing Wisely

Another element of your game plan should be systematic withdrawals. Your RMD will be a specific amount, but it is not required that you pull money from each tax-deferred investment. Sometimes it is best to take your RMD from one account. Start with the account you like least. Also, try to avoid selling stocks at a loss in order to satisfy your RMD. Choose the right investments to withdraw from.

Being selective about which accounts you withdraw from doesn’t apply solely to your tax-deferred investment accounts. Depending on your personal circumstances and the tax forecast, you may find it advantageous to draw more from your Roth IRA (and other tax-free investments) earlier in retirement. Or, you might find it better to save your Roth IRA for later on. Many people find a combination to be most advantageous. For example, one approach is to withdraw as much as possible from your tax-deferred account without bumping yourself into the next tax bracket. Then you can supplement with tax-free investments, like a Roth IRA.

Another withdrawal strategy to consider is rolling a tax-deferred investment into a Roth IRA. You will be taxed at the time of roll-over, but then that money will not be subject to an RMD and it will continue to accrue interest until you need to withdraw it.

Minimizing Taxes

You can’t completely avoid paying taxes. But you can avoid paying more than you need to. One simple thing you can do is be sure you don’t pay taxes again on contributions that have already taxed. To do this, it is important to keep good records and understand the rules of your different investment types. Know where your contributions came from. If you paid tax on the money before you put it in, you probably don’t need to pay tax on it again when it comes out.

Another way to minimize taxes is to contribute to charity. You can send up to a total of $100, 000 each year directly from your IRA to a charity (or charities). This money will count toward your RMD, but will not count in your adjusted gross income. This can be used to your benefit to keep you in a lower tax bracket.

Seek Guidance

There are a lot of factors to consider as you outline your income plan for retirement. And remember that it isn’t a one-time thing. It’s important that you reassess each year as circumstances and your needs change. You have worked hard and saved for years. You want to be sure that you are making the most of your hard-earned money. It is best to have an expert in your corner. A trusted financial advisor can help minimize some of the stress so you can enjoy your

Leave a Comment

Your email address will not be published. Required fields are marked *


WealthGuard Advisors, Inc. is a Registered Investment Adviser.  California Life Insurance license numbers: Casey Murdock #0F01130.

This website is a publication of WealthGuard Advisors, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Blog articles and certain content were prepared by a third-party provider. Content should not be viewed as personalized investment advice or as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities discussed. A professional advisor should be consulted before implementing any of the strategies presented. Hyperlinks on this website are provided as a convenience and we disclaim any responsibility for information, services or products found on websites linked hereto.WealthGuard Advisors, Inc. is registered as an investment advisor with the Securities and Exchange Commission and only do business in states we have notice filed. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s investment portfolio. Our Client Privacy PolicyForm CRS.

This site uses cookies – small text files that are placed on your machine to help the site provide a better user experience. In general, cookies are used to retain user preferences, store information for things like shopping carts, and provide anonymized tracking data to third party applications like Google Analytics. As a rule, cookies will make your browsing experience better. However, you may prefer to disable cookies on this site and on others. The most effective way to do this is to disable cookies in your browser. We suggest consulting the Help section of your browser or taking a look at the About Cookies website which offers guidance for all modern browsers.