The more you learn about retirement planning as well as drawdown strategies, the more likely you are to succeed in retirement. Only you know your goals, your longevity prospects, your income needs, and your expected retirement outcomes. In reality, this still leaves your advisor in the dark. In theory, you can gather up your benefit statements, brokerage accounts, and tax returns and hand them over to your advisor to sort through. And you won’t be able to explain your situation unless you are informed. Outside experts, while beneficial, won’t be effective unless they understand your personal situation. In most cases, the expense for this kind of expertise is worth it in order to maximize the efficiency of your drawdowns.Ĥ.
There are experts who can help you with these complexities, as well as investing, portfolio management, and benefit maximization. For the NII surtax, the threshold is based on “marginal adjusted gross income ” for QBI it’s measured by “taxable income ” and to avoid the Social Security tax torpedo, it involves a “base amount” calculation unique to Social Security. Consider the example of just one tactic used in the drawdown process: arranging your income to stay under key thresholds. With affluence comes complexity, and you’ll likely find that taking a DIY approach to determining your drawdown strategy isn’t efficient or even plausible. Your drawdown plan should be monitored and tweaked on an ongoing basis.ģ. Drawdowns will need to be adjusted to account for returns on investments, changes in taxes and, most importantly, your personal fluctuations in needed cash flow. Getting to retirement involves enough shocks and deviations but retirement itself has its own set of surprises. The reality is that every individual’s profile is unique, and the best you can do is come up with a strategy that maximizes the efficiency of your withdrawals.Ģ. If you don’t believe this, Google the question “what is the maximum retirement income withdrawal rate?” A quick scan will provide you with opinions that range from 3.5% to over 8% of retirement capital. The fact is that withdrawal strategies are not only complex, but also inexact. Accept that there is no one right strategy. The following steps can help get you where you want to be with retirement drawdown strategies.ġ. It just calls for some work and a lot of planning. Is there a secret drawdown strategy?ĭespite the challenges, it is possible to create a workable drawdown strategy. The myriad ideas are a witch’s brew of confusing and seemingly contradictory tactics. You may look at your personal situation and be wondering how you can possibly sort through these strategies and come up with the right drawdown approach. Finally, upon reaching age 70 ½, you begin to withdraw from your Roth IRA funds in order to minimize the tax burden of RMDs. Once you reach age 70, you generate part of your income by filing for Social Security, and this cash flow lessens the withdrawals you need to take from your other accounts. Any additional needed cash flow would then come from your after-tax assets, such as your investments. At retirement, you start withdrawing from your IRA until your taxable income is a few dollars below your next marginal tax bracket. Here’s how a typical order of withdrawal strategy might work. The ordering of withdrawals is where efficiency can be maximized. It’s not just a matter of setting up your withdrawal schedule on the date you retire and then going on autopilot. An efficient order of withdrawals is a lifetime aspect of drawdown strategies. This helps delay taxes on higher taxed assets.ģ.
In other cases, you may put your least tax efficient assets in your tax-deferred accounts while keeping your tax efficient assets in your taxable accounts. This helps avoid taxation on potentially high yielding assets. Portfolio efficiency involves locating the right kind of asset in the right account to leverage these attributes.įor example, you might place higher expected return assets in your tax-free account while locating lower expected return assets in your tax-deferred accounts. Finally, some assets have growth potential (e.g. IRAs), and yet others are after-tax (e.g. Roth IRAs), while others are tax-deferred (e.g. At the same time, some retirement accounts are tax-free (e.g. tax-exempt bonds), and some are tax inefficient (e.g. This involves the juggling of three factors in such a way as to maximize the overall after-tax efficiency of retirement capital: the tax status of accounts, the tax status of assets, and the growth potential of assets. Portfolio efficiency during decumulation is also crucial. In sophisticated planning, it entails calculating how much of an IRA to convert to a Roth IRA to stay just under your next marginal tax bracket.Ģ. Is there a secret to drawing down retirement income? Gettyįor Medicare Part B, the net investment income (NII) surtax, and qualified business income (QBI) deduction.
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