Planning the distributions of your retirement funds helps you make the money last throughout your golden years. Taking too much money early in your retirement could cause you to run out too quickly. This could force you back into employment or leave you to find other means to pay your bills. You might also have to change your lifestyle down the road if you don't have enough funds left to sustain your current way of living.
Taking out just what you need is a conservative approach so you don't outlive your retirement funds. Create a realistic budget to determine how much you need to withdraw to cover your expenses. Living at Bethesda Gardens Phoenix makes it easy to budget for your living expenses, with a consistent monthly fee and no unexpected repair costs.
Many people are familiar with the minimum age to take distributions from retirement accounts, but there's also a maximum age for starting disbursements on many types of retirement savings options. Working with an expert helps you decide when to begin taking distributions to avoid penalties and other issues.
If you have a traditional IRA, SEP IRA or SIMPLE IRA, you must take a minimum amount out of the account by the time you turn 73. For a 401(k), profit-sharing plan or other workplace retirement plan, you can hold off on your required minimum distributions until you retire. Roth IRAs don't have minimum required distributions.
Deciding when to start taking distributions is also important for your Social Security benefits. You can take your Social Security benefits as early as 62, but you'll receive smaller monthly payments that won't increase as you get older. Waiting to start means you receive a larger amount for the rest of your life. You'll need to calculate how much you'll receive by getting the smaller amount for a longer time to see which is the better option for you. In general, you can begin withdrawing funds from most other retirement funds at age 59 1/2 without paying penalties.
Planning your distributions carefully ensures you satisfy the requirements for your minimum distributions while maximizing funds from all sources. For example, if you retire at 62, you might decide to take distributions from your 401(k) right away and hold off on Social Security to receive larger payments when you do take those distributions.
You still need to pay federal taxes in retirement, so it's important to know how your retirement distributions affect what you owe. Retirees pay taxes on retirement funds that were pretax contributions, including traditional IRAs and 401(k)s. The tax rate you pay depends on your income. If you take larger distributions right away, your higher income could result in a higher tax rate. Spreading out the money to balance your income level each year could help lower your taxes.
Deciding on your retirement distributions helps you plan financially and make decisions. For example, you might choose to downsize in retirement based on the amount of your distributions. Being conservative with how much you take out could help you decide what type of vacations you plan.
It could also help you decide if you should look for additional streams of income, such as a part-time job, side hustle or business. Revisiting your financial situation, budget and retirement account balances helps you adjust your distribution amounts over time.
There isn't a one-size-fits-all solution for how much you should take as distributions from your retirement accounts. Your personal financial situation determines how much money you need to maintain your lifestyle. That's why it's often helpful to get personalized advice from financial professionals. Here are some who can help you plan your retirement distribution:
Estate attorney: If you also want assistance in planning your estate to help your loved ones after you pass, an estate attorney is a good resource. They help with a wide range of issues, including planning how to use your retirement funds, minimizing estate taxes, protecting your assets and creating legal documents, such as wills and powers of attorney.
