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Two Key Retirement Income Questions

October 16, 2017

As adults, we know the importance of saving for retirement.

BUT what happens as we enter retirement? We have been saving money all of our lives and now we are transitioning from saving money to spending what we’ve saved.

We are transitioning from retirement planning to retirement income planning.

Ove the years, I have had many colleagues and clients reach out to my consulting firm, Family Wealth Decisions Group, as they recognize that this simple concept of relying on savings isn’t so simple.

At this juncture, I could stuff this article with facts and information, overwhelming many of you. Instead, I want to provide a high- level overview of two key components of retirement income planning.

A couple of years ago the American Institute of CPAs revealed that two prime retirement income planning concerns are (1) running out of money and (2) how to more efficiently and effectively tap into assets.


That shouldn’t be a surprise. “How much money do I have to live on each month?” is a common question. And, “Which accounts and in what amounts should I pull funds from?” come sup often.


Let’s start with the first question – running out of money

Sources of income during retirement may include Social Security, assets, earnings from part-time work, earnings from an annuity and pension. Social Security, a pension and the annuity are reasonably reliable sources of income. For many folks, however, it’s not enough to live on, and a lifetime of savings plays a key role in filling the gap.

Some of you may be in a position to live off interest and dividends, only withdrawing principal for special needs. Many, however, may need to rely on carefully meting out and using much of their lifetime savings.

One approach is to employ what’s called a “sustainable withdrawal rate”. One common method is called the 4% rule, which some of you may heard of. It refers to the withdrawal of 4% of your savings each year for a 65 year old retiree. This was once a helpful rule of thumb, but the current extended low interest rate environment may have made it less than ideal for today’s retirees.

Let’s look at another scenario. We can always increase the annual withdrawal rate to 5% or more; however, if we raise it too high, there is the risk of running low or running out of savings. Instead, maybe you should consider a withdrawal rate based on your time horizon, asset allocation, and confidence level. Questions for consideration in this regard may include:

  1. How many years do you want to plan for?
  2. What asset mix between stocks and bonds are you comfortable with?
  3. What level of confidence do you want to have that your money will last?


A lower withdrawal rate may increase the odds the portfolio will last through your retirement years – that’s intuitive. But it also means less discretionary income. This dilemma also illustrates the need to keep an eye on capital appreciation, especially in today’s low-rate environment. It’s why we at the Family Wealth Decisions Group are likely to recommend that our clients’ portfolios include a mix of securities.


Of course, flexibility and ongoing monitoring are critical. This isn’t a “set and forget” portfolio. Adjustments can be made based on your personal situation. So, it’s important we monitor and modify as necessary.


Let’s address the second question – withdrawal order

Which accounts should you tap first if your goal is to maximize spending during your lifetime?

  1. Let’s start with the required minimum distribution from tax-deferred accounts such as IRAs. At 70 ½ years old, the IRS requires that you take a minimum distribution each year. Miss it and you’ll pay a big penalty.
  2. Taxable interest, dividends, and capital gains distributions may be the next best source of income.

If additional funds are needed, your anticipated future tax bracket comes into play. Let me explain.

  • If we expect a higher marginal tax bracket in the future, withdrawing from the traditional IRA today may be the most advantageous choice. But be careful that the distribution doesn’t push you into a higher tax bracket in the year you take it.
  • If you anticipate a lower tax bracket down the road, a Roth IRA may be the best option for today’s income needs. Withdrawing additional funds from traditional tax-deferred IRAs may be pushed further into the future.

However, there is one big advantage to leaving the Roth alone. You may continue to take advantage of the tax-free umbrella the Roth Provides. Or, you can gold on to the Roth for unexpected expenses. Moreover, the Roth can be used as an estate planning vehicle because heirs may be able to sidestep federal taxes when withdrawing from it.

These are just a couple of ideas designed to provide you with a framework as you enter or gear up for retirement. It is a broad overview that’s designed to shed light on a situation that’s unfamiliar to many retirees.

Each situation is unique, which means there are many other aspects of retirement income planning that could be useful for your specific situation.


Our door is always open

We are here to help. We are only an email or telephone call away. Our team at the Family Wealth Decisions Group ( is always happy to answer any questions or provide a more comprehensive review tailored to your needs. Call us at 516-682-7564 or email us at [email protected].