Withdrawal strategy explained
A withdrawal strategy (also called a decumulation strategy) guides how you take funds from your retirement accounts to create your retirement income. This can help keep you from outliving your savings by establishing an amount that you can safely withdraw each year. It may also prevent you from paying unnecessary taxes.
- Your marital status
- All potential sources of retirement income
- Your life expectancy
- How long you want your savings to last
- How withdrawals may affect your taxes
- How comfortable you are with investment risk
No matter which strategies you choose, you'll want to maximize additional retirement benefits you may have. By making the most of resources like a pension, Social Security and Medicare, you could avoid spending more of your retirement assets than you need to.
When should you start planning?
Ideally, you should begin thinking about a withdrawal strategy as early in your work life as possible, since it can impact how you save for retirement. However, it’s not too late to create a strategy even if you’re closer to retiring or have already retired.
That’s because toward the end of your career, you can better estimate how much retirement savings you expect to have for retirement. You’ll also be able to calculate possible expenses more realistically. Ballparking your income and costs will give you a clearer picture of your retirement budget.
- Retirement accounts
- Social Security retirement benefit
- Out-of-pocket health care
- Long-term care
Creating a withdrawal strategy takes careful consideration. By planning, you can enjoy your savings — and your life in retirement — to the fullest.