Retirement Plan Withdrawals - How to Safely Take the Money Out With These Five Options By Fern LaRocca At Isnare.com Ezine Articles

When people retire or need to withdraw money from pensions or investments, they get confused on what to do. People are living longer so their money must last for a lifetime which can be hard to plan for. Also the high cost of healthcare doesn’t help those who depend only on a fixed income. A mix of guaranteed income and income that has the potential to increase annually is ideal. That kind of mix will also help keep your taxable income down as you will draw from a mix of taxable income and capital gain dividends. It will also help diversify your risk at retirement.

Here are five options for an easy withdrawal plan. Choose one or more depending on your personal situation:

1. Don't take more than a 4% withdrawal of all assets. Studies have shown that if you withdraw more than that, you will spend down principal. Spending down principal may be okay if you are 70 years old or older, but not when you are 55.

2. Keep two years of retirement income needed in cash. This is especially good when we have a bond market that is volatile like we have today. Have all income (including dividends, cash, pension, etc.) go into a money market or savings account to replenish the income that you take out. Keep two year's worth of income in the money market account or savings account.

3. Keep one year of laddered (3 month, 6 month, 1 year) Certificate of Deposits that you use to take income from (when they come due) and replenish those Certificate of Deposits with income from other sources. This is labor intensive since you must continually look for new Certificate of Deposits as they come due but it assures you the highest interest on your cash holdings while you are also taking withdrawals.

4. Take a combination of withdrawals that produce taxable income, tax-free income, and capital gain income to keep your tax rate down while you withdraw. Remember, you get to spend only that amount that you withdraw after tax so don't take everything out that is taxed at ordinary income rates. Split it up if you can with Roth withdrawals (potential tax-free income), muni -bond dividend income (tax-free income), or sell a portion of investments each year (potential tax-favored capital gain income).

5. Some people invest in an immediate annuity for their income needs. This becomes the fixed income portion of their portfolio and they don't have to worry about cash, Certificates of Deposits or bond income. They get an income for life, but the downside is that few have an inflation rider and many have high internal fees.

Withdrawal plans don't need to be confusing. With these five options you can choose a plan that will give you the income you need while maintaining growth and keeping your taxes down. Pick a program that you feel comfortable with so when you need money, you will know how to withdraw with minimal downside.

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