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Which Source Of Retirement Income Should You Tap Into First?


Financial planners often start their sessions with new clients by asking them how much money they want to spend in retirement.  Economics professor Laurence Kotlikoff thinks this approach is wrongheaded, because you can only spend as much as you have, so it is useless to think about how much money you want without first taking stock of how much you are starting with.  While Kotlikoff’s warnings about financial planners playing on people’s unrealistic wishes for their financial future make sense, there is some truth to the fact that strategic decisions about when to withdraw money from which source of retirement income can give you the best possible return on your investment.  An Orlando estate planning lawyer can help you get the most out of your financial plans for retirement and make the best decisions with the retirement income you have available.

Delay Withdrawing Money from Your 401(k), IRA, and Social Security for as Long as Possible

Lawrence Kotlikoff and others will tell you that you should delay retirement for as long as possible.  That advice might be good for people in their late 60s who are healthy and who love their jobs, but it doesn’t work for everyone.  Strictly from a numbers perspective, you will get the biggest payout each month if you delay taking withdrawals from Social Security until you reach the age of 70 and required minimum distributions from your 401(k) or IRA account until age 72.  This does not mean that you have to stay in the workforce until you are 72, but if you plan to retire when you are 65 (or 64 or 66 or 67, or whatever age you choose), you should have other sources of income to rely on so you can wait for the big payouts you will get if you maximize your Social Security, 401(k), and IRA accounts by waiting until later to withdraw money from them.

Where to Withdraw Your Money First

The first place that you should start withdrawing retirement income is your investment accounts.  These investments may include brokerage accounts, stocks, bonds, mutual funds, or ETFs.  No matter which investment accounts you draw from, you will have to pay capital gains taxes on the withdrawals you take out each year.  This is just a fact of life, like paying taxes on the income you earn at your job during your working years.  Financial planners might try to do fancy math to convince you to buy certain investment products (on which the planner will make a profit) which will allegedly save money on taxes, but the bottom line is this: Yes, investment accounts are the first place to get income after you retire, and, no, they are not tax free.

Let Us Help You Today

Estate planning is about more than just money, and an estate planning lawyer will help you figure out the financial and non-financial aspects.  Contact Gierach and Gierach, P.A. for help with your case.



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