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.
Various strategies address different financial concerns and situations. You may use one or a combination to fit your circumstances and goals. You'll need to consider factors such as:
Examples of withdrawal strategy options
While there are many withdrawal strategies, here are a few options you may consider:
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.
To calculate a retirement budget, add up all your income sources such as:
Remember to factor in taxes, which can reduce your total. To estimate expenses, think about your desired lifestyle. Include items like:
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