Retirement Withdrawal Strategies
Sometimes one of the more overlooked parts of planning for retirement is how you withdraw retirement funds. Many tax-efficient retirement withdrawal strategies in Florida and other retirement withdrawal strategies have their advantages. Find one that works for you and your situation. Not all techniques are one size fits all. Some systems may work wonderfully for you, while that same plan might not be realistic for others. Learn more about the different retirement withdrawal strategies to find what your advisor can help you set up.
The 4% rule may be a guide for you in choosing your retirement withdrawal strategies. This strategy calls for you to withdraw 4% of your savings in the first year of retirement. Every year continuing forward, pull another 4% of your savings while adjusting for inflation. This method is considered relatively safe, especially if you still have sources of income in your retirement. However, you should meet with a financial advisor to ensure that the 4% rule will work for you.
Withdraw a fixed percentage.
This tax-efficient retirement withdrawal strategy is very similar to the 4% rule. The primary difference is while the 4% can change year to year based on inflation, that number does not change when you withdraw a fixed percentage. You can decide what percentage suits your situation the best when you talk with your advisor. It may be 5%, or it could be something else. The best way to determine that number will depend on age/life expectancy, savings, and the funds required during retirement. This strategy can be a bit riskier during a bear market or if your portfolio does not perform well.
Take fixed dollar withdrawals.
Retirement withdrawal strategies (like taking fixed dollar withdrawals) can be comfortable. But it can be risky as it does not consider the account performance. Taking fixed dollar withdrawals is when you pull the same amount of money from your retirement fund monthly, quarterly, or yearly. Some specific investment accounts, like mutual funds or annuities, guarantee regular payments of exact amounts every period.
Limit withdrawals to income.
Limiting your withdrawals to the income generated by investments may not be realistic for everyone, but this may be a safe retirement withdrawal strategy for you. This approach allows the principal to stay the same or grow, as you only pull money made from the investments. This method can be hard to do with small accounts or without substantial retirement income from various sources. Ex: a 10% return annually on $100,000 is only $10,000. That is assuming a 10% return. In down or volatile markets, your retirement income will be relative to what your investments can return, making this strategy inconsistent.
Consider a total return approach.
Similar to the 4% strategy again, this method of tax-efficient retirement withdrawal only has a slight difference. When you pull out 4% (or whatever percent fits you) for retirement, it comes from all your sources like investment returns, dividends, and annuities before ever breaking into the principal savings. The total return approach provides an extra layer of safety that prevents you from touching the principal as much as possible.
Create a floor.
Creating a floor may be the safest retirement withdrawal approach. This strategy involves building up enough sources of retirement income that you can cover the expenses. These are some kinds of secured earnings you can count on in retirement: annuities, pensions, social security, and mutual funds. The performance of the market has less of an impact on these sources of income, giving you peace of mind.
Bucket your money.
The bucket strategy gives you some flexibility but also helps you plan in more detail. Using a retirement withdrawal strategy, like the bucket method, allows you to split your savings into different accounts for different reasons and timelines. The first account could hold shorter-term money in a high-yield savings account or cash/bond funds. For the cash that you may need access to soon (3-10 years), but in no rush, you could keep that in fixed-income investments or a mix of stocks, bonds, and CDs for moderate growth. For the money that you won't need for 10+ years, put that into your longer-term retirement/ investment accounts or growth funds. Having money ready for different stages of your life and retirement can make this strategy safer.
Minimize mandatory distributions.
Many traditional retirement accounts have required mandatory distributions or RMDs. They begin at age 72, and if you do not withdraw the designated amount, that could lead to a tax penalty. Minimizing your RMDs can be one of the best retirement tax strategies! You can reduce or eliminate RMDs by converting your money from traditional retirement accounts into others, like a Roth IRA account, that you can grow and withdraw from tax-free.
Use account sequencing.
Using account sequencing can be a helpful tax-efficient retirement withdrawal strategy. In summary, you get your target amount of retirement money through a combination of savings and investment accounts, getting you the most strategic withdrawals and minimizing taxes.
Factors that affect your withdrawals
Two primary factors that may affect your retirement withdrawals in Florida are taxes and social security. Be aware of the different variables and factors, especially when planning retirement withdrawal and tax strategies.
During retirement, taxes are not automatically collected like they are with a W-2 paycheck. It is not dissimilar to being self-employed. You are still required to pay taxes. Depending on your accounts, there may be various tax penalties for how much, when, or how you withdraw money.
The earliest you can begin to take social security benefits is 62, but it is a reduced amount unless you wait until the full retirement age of 67. At age 67, you can receive 100% of your social security benefits, but if you delay taking them, you could be increasing your monthly amount %s per year until you are 70.
Talk to an Advisor at Oxford Today
Contact Oxford Advisory Group today to begin discussing and planning your tax-efficient retirement withdrawal strategies in Florida. Work with advisors to get where your only focus is living life! The team at Oxford is genuinely passionate about helping people "Live retirement with confidence!"
This report was prepared by Oxford Advisory Group, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Oxford Advisory Group, Form ADV Part 2A & 2B can be obtained by written request directly to 111 N. Orange Ave., Suite 775, Orlando, FL 32801. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this report.
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