Reaching retirement is a milestone worth celebrating—it’s the time to finally enjoy the benefits of all your hard work. However, making sure your savings last requires both a sustainable retirement income plan and smart retirement withdrawal planning. The manner and timing of your withdrawals can have a significant impact on how long your savings will last. At Beacon Wealth Management, we understand the value of strategic withdrawal techniques and are here to help guide you through smart methods to make your savings work for you throughout your retirement.

Assess Your Financial Needs

The first step in smart retirement withdrawal planning is to assess your financial needs. Start by estimating your annual expenses, including both essential costs (such as housing, food, healthcare, and utilities) and discretionary spending (such as travel, hobbies, and dining out). Having a clear understanding of your financial needs will help you determine the appropriate withdrawal amounts from your retirement accounts so you can enjoy a sustainable retirement income plan.

Make a Detailed Budget

A detailed budget is also essential as you examine strategic retirement withdrawal techniques because it helps you monitor your spending and adjust your withdrawals accordingly. Track your monthly and annual expenses to ensure you are living within your means. Regularly reviewing and updating your budget can help you identify areas where you can reduce spending, ensuring your savings last longer.

Understand Required Minimum Distributions (RMDs)

Your sustainable retirement income plan will likely include Required Minimum Distributions (RMDs). If you have traditional IRAs or 401(k) accounts, you must begin taking RMDs once you reach the age of 72 or 73. The IRS requires these distributions to be sure that taxes are paid on the money that has been growing tax deferred. It’s crucial to understand RMD rules and incorporate them into your overall withdrawal strategy to avoid hefty penalties and manage your taxable income effectively.

Utilize the ‘Bucket Strategy’

The bucket strategy is a popular method for managing retirement withdrawals and creating a sustainable retirement income plan. This technique involves dividing your savings into three buckets based on the time horizon and investment risk:

Short-Term Bucket

This bucket contains cash and low-risk investments to cover immediate expenses (1-3 years). It provides stability and easy access to funds without worrying about market fluctuations.

Intermediate-Term Bucket

This bucket holds moderate-risk investments, such as bonds and balanced funds, intended to cover expenses in the mid-term (4-10 years). These investments aim to provide some growth while maintaining a lower risk profile compared to equities.

Long-Term Bucket

This bucket contains higher-risk investments, such as stocks, aimed at growth over a longer period (10+ years). This approach allows your money to grow over time, potentially offsetting inflation and providing funds for later years in retirement.

When it comes to smart retirement withdrawal planning, the bucket strategy helps you plan to have funds available for short-term needs while allowing the rest of your portfolio to grow over time.

Understanding Why Sequence of Withdrawals Matters

Some aspects of developing a sustainable retirement income plan can be complex, and this is one of them. Deciding the order in which to withdraw from different retirement accounts can significantly impact your tax liability and the longevity of your savings. A common approach is to withdraw from taxable accounts first, followed by tax-deferred accounts (like traditional IRAs and 401(k)s), and then tax-free accounts (like Roth IRAs).

Here’s what that would look like:

Taxable Accounts

Start by withdrawing from taxable accounts, as these withdrawals are typically subject to capital gains taxes, which may be lower than ordinary income taxes. This approach allows your tax-deferred and tax-free accounts to continue growing.

Tax-Deferred Accounts

Next, withdraw from tax-deferred accounts. These withdrawals are taxed as ordinary income, so it’s important to manage the amount you withdraw each year to avoid pushing yourself into a higher tax bracket.

Tax-Free Accounts

Roth IRAs offer tax-free withdrawals, making them an excellent option for later years in retirement. Using Roth IRAs last allows these accounts to grow tax-free for as long as possible, providing a valuable source of tax-free income.

Consider Dynamic Withdrawal Strategies

While traditional withdrawal strategies provide a solid foundation, dynamic withdrawal strategies can offer more flexibility and adapt to changing market conditions and personal circumstances.

Here’s what we mean:

Variable Percentage Withdrawal

The variable percentage withdrawal strategy adjusts the withdrawal rate based on the performance of your portfolio. In good years, you may withdraw a higher percentage, while in bad years, you reduce withdrawals to preserve your principal. This method helps mitigate the risk of depleting your savings too quickly during market downturns.

Guardrails Approach

The guardrails approach sets upper and lower limits for withdrawals based on your portfolio’s value. If your portfolio grows significantly, you can increase withdrawals within a predetermined range. Conversely, if the portfolio value declines, you reduce withdrawals to stay within the lower limit. This strategy provides a balance between maintaining a stable income and preserving your savings.

Strategic Retirement Withdrawal Techniques: Review and Adjust Regularly

Retirement planning is not a one-time task; it requires regular reviews and adjustments. Life events, market conditions, and changes in expenses can all impact your withdrawal strategy. Schedule annual reviews with a financial advisor to assess your plan’s performance and make necessary adjustments. Being proactive and adaptable helps you develop retirement savings that last as long as you need them to.

Have You Developed a Sustainable Retirement Income Plan?

Creating a sustainable retirement income plan and applying smart retirement withdrawal planning techniques is key to preserving your savings and maintaining financial stability throughout retirement. By evaluating your financial needs, understanding Required Minimum Distributions (RMDs), using strategies like the bucket approach, sequencing your withdrawals properly, and considering more flexible withdrawal methods, you can better manage your funds. Regularly reviewing your plan helps keep everything on track, allowing you to enjoy your golden years with less financial stress.

If you’d like to learn more about how the experienced and committed team at Beacon Wealth Management can help you create a proactive and intentional strategy for retirement income planning, let’s start a conversation! Contact us today to schedule your personal 15-minute discovery call and learn more about our services and process.