Insights + Resources

Systematic Withdrawal Strategies

Oct 25, 2019

Doors
Should you arrange automatic distributions from your retirement or investment accounts?

Some retirees wish they could simplify money management.Estimating investment income, annual retirement plan distributions, and quarterly taxes can be a chore.

This is why some retirees choose to make systematic withdrawals. Just as they contributed a set amount per month to their retirement accounts while working, they now withdraw a set amount from their accounts each month, quarter, or year.

The simplicity of this may appeal to you. The potential drawback is that a systematic withdrawal strategy can risk oversimplifying the complex matter of retirement income distribution.

How Do These Strategies Work?

A specific monthly, quarterly, or annual withdrawal amount is established, and then assets are sold or liquidated to generate the cash. As people commonly have multiple retirement or investment accounts, a comprehensive systematic withdrawal strategy arranges proportionate withdrawals from most or all of them. Sometimes, federal or state taxes can be withheld from the withdrawals.

Remember, investments will fluctuate in value and when sold, they may be worth more or less that their original cost.  This article is not intended as tax or legal advice, and may not be used for the purpose of avoiding any state or federal tax penalties. Please consult a professional with legal or tax experience regarding your situation.

These Withdrawals Often Take Time To Arrange.

Most investment custodians will permit them, but paperwork is necessary. In some cases, they are only allowed when the account balance isabove a certain level.

In the big picture, tax issues must also be considered. Withdrawals from retirement accounts may be characterized as taxable income.

There Are Times When Systematic Withdrawal Strategies May Not Work Well.

For example, say some of your investments have lost value, but your withdrawal amount stays the same. This means that a greater percentage of your investments may have to be sold to generate that income you have set up.

So during this period, you are selling a greater percentage of your invested assets – assets that have the potential to grow in the future.

Also, note that required minimum distributions (RMDs) may apply to certain accounts after you reach age 70½. That implies an end to systematic withdrawals, as your RMDs will almost certainly vary per year. 

There Are Pros and Cons to Adopting a Systematic Withdrawal Strategy.

A Charlotte NC advisor of finances may help you make an informed decision.

Tags: , ,

More Insights

May 27, 2020

In corporate America, pension plans are fading away. Only 16% of Fortune 500 companies offered them to full-time employees in 2018, according to Willis Towers Watson research. In contrast, legal, medical, accounting, and engineering firms are keeping the spirit of the traditional pension plan alive by adopting cash balance plans.1

May 25, 2020

I’d like for you to meet my friend, Hugh. He’s a retired film stuntman who, after a long career, is enjoying his retirement. Some of what he’s enjoying about his retirement is sharing part of his accumulated wealth with his family, specifically his wife and two sons. Like many Americans, Hugh likes to make sure … Continue reading “The Gift Tax”

May 22, 2020

“Never confuse a single defeat with a final defeat.” — F. Scott Fitzgerald The economic struggles in our country are among the worst we’ve ever seen. In April, a record 20 million people lost their jobs, and 36 million people have filed for unemployment since the COVID-19 pandemic struck in mid-March. Record drops in consumer … Continue reading “Better Times Are Coming”

May 20, 2020

You can sum up the appeal of a Roth IRA in three words: federal tax benefit. Potential earnings in a backdoor Roth IRA grow tax free as long as the owner abides by the Internal Revenue Service (I.R.S.) rules, and withdrawals are federally tax free once you reach age 59½ and have held the Roth … Continue reading “Backdoor Roth IRA”

May 18, 2020

Inheriting wealth can be a burden and a blessing. Even if you have an inclination that a family member may remember you in their last will and testament, there are many facets to the process of inheritance that you may not have considered. Here are some things you may want to keep in mind if … Continue reading “Coping With An Inheritance”

Insights + Resources >