A Quick Guide for Withdrawing from Your Retirement Plan

As you head into retirement, one of the biggest challenges is making sure your savings last. Having a smart withdrawal strategy is key to managing your money, covering living expenses, and hitting other financial goals without running out of funds too early.

Today’s retirees face a more complex world than before. With people living longer, you might spend 20+ years in retirement [1]. Market ups and downs, inflation, and tax changes make planning even more important.

A major concern is outliving your savings. Without a plan, it’s easy to overspend early on and struggle later. A solid withdrawal strategy can help keep your finances on track through the different phases of retirement.

Phases of Retirement Spending

Retirement spending typically follows three stages:

1. "Go-go" years – early retirement, when spending is higher due to travel and hobbies.

2. "Slow-go" years – around your 70s, when activity slows, and healthcare costs rise.

3. "No-go" years – when healthcare and long-term care take priority, and discretionary spending drops.

Withdrawal Strategies

A static strategy (like the 4% rule) [2] means taking out the same amount each year. It’s simple but doesn’t adjust to market swings. A dynamic strategy adjusts withdrawals based on market performance, but it requires more monitoring and can lead to variable income.

In practice, many retirees prefer sticking to a modest, consistent amount to maintain stability.

Order of Withdrawals

The sequence in which you withdraw from accounts matters for taxes and savings longevity. Here's a typical approach:

• Start with taxable accounts (like brokerage accounts) to take advantage of lower capital gains taxes and allow tax-advantaged accounts to grow.

  
  

• Next, withdraw from tax-deferred accounts (e.g., Traditional IRAs, 401(k)s) to manage tax liabilities, especially once required minimum distributions (RMDs) kick in.

  
  

• Lastly, tap into tax-free accounts (like Roth IRAs) to maximize tax-free growth and leave these as a final source of income, if possible.

Adjust this order based on your individual tax situation, expected future tax rates, and estate planning goals.

Our Expert Take on Withdrawal Strategies

Whether you go with a static or dynamic approach, balance is key. For most people, a steady, modest withdrawal rate brings peace of mind. It’s important to regularly review your plan and adjust as needed. If you want help figuring out the best approach for your situation, we’re here to assist!

The concepts expressed herein represent the views and opinions of Pension Consultants, Inc., and are not intended as legal, tax, or investment advice for any specific individual, account, or plan.

Sources:

[1] Social Security Administration, "Changing Longevity, Social Security Retirement Benefits, and Potential Adjustments," 2021. https://www.ssa.gov/policy/docs/ssb/v81n3/v81n3p19.html

[2] Vanguard, “A guide to retirement withdrawal strategies,” 2024. https://investor.vanguard.com/investor-resources-education/article/retirement-withdrawal-strategies