Retirement Account Withdrawal Strategies

Retirement Account Withdrawal Strategies

Like most things in life, retirement fund withdrawals should be carefully planned to maximize your assets and get the most mileage from your retirement funds. Of course, the first act is to view your retirement fund “inventory” to see what your options are. You may be able to draw from any of the following types of retirement accounts:.

  • 401(k) or 403(b)
  • Annuities
  • Business ownership
  • HSAs (health savings account)
  • IRAs (traditional, Roth, or both)
  • Pensions
  • Social Security Income (SSI)
  • Stock-based compensation
  • Taxable investments

Regardless of the types of retirement funds you have, there are multiple options for withdrawing them to help you get the highest value from these funds throughout your retirement.

Penalty-free withdrawals from IRAs and 401(k) / 403(b) accounts begin at the age of 59.5. You do not want to start withdrawing from these funds before that age, if possible, to avoid potentially steep penalties. Mandatory withdrawals begin at the age of 70.5. Roth IRAs are the exception, however, as there are no mandatory withdrawals until after the death of the account holder.

Which Funds First?

When determining which of your retirement funds to withdraw first, some aren’t up for debate. You must begin receiving minimum distributions by certain stages of your life. There are, however, some retirement funds that leave you in the driver’s seat for how you wish to manage your retirement finances.

One of the primary considerations when determining which retirement funds to utilize or withdraw first involves taxation. The more you pay in taxes, the less of your money you get to keep. When funds and opportunities to earn more funds are limited, as they are in retirement, it is best to adopt a strategy that minimizes your contributions to Uncle Sam.

The other vital consideration involves your income needs. It is wise to consider the monthly income you will require to maintain a particular lifestyle during your retirement. Once you understand the monthly income you will need to meet those standards; then you must work out a budget that will create a sustainable income for you for the duration of your retirement.

Do not forget, however, that you should revisit your strategy each year to determine whether your goals are the same, your needs are consistent, and the monthly income generated was sufficient to meet those needs and reach those goals or if more significant income is required. In other words, you can make changes, to some degree, throughout retirement to accommodate things like rising health care costs, increased costs of living, and even decisions to move to areas that have lower costs of living.

Retirement Withdrawal Strategies

There are a few commonly employed retirement withdrawal strategies that serve retirees well, depending on their financial goals and other considerations. The one that will work best for you may not be the same one that works best for others. It may even require some degree of trial and error to decide which strategy you like best.

These are some commonly used retirement withdrawal strategies you might want to consider.

  • The Four Percent Rule. This strategy has you withdrawing four percent your first year and an additional two percent (to account for inflation) each year after that. This method gets lauded for its simplicity. It is equally criticized for being somewhat short-sighted as market volatility can create a risk for depleting funds too quickly.
  • The “Buckets” Strategy. This strategy creates three “buckets,” where you store your holdings. In one bucket, you will have 20 percent of your savings to serve as living expenses for up to five years. The second bucket holds “fixed income” securities. The third holds the remaining assets in equities. Cash removed from the first bucket is replenished from the remaining two. It offers opportunities for savings to continue growing throughout your retirement but is much more time-consuming to manage than other retirement withdrawal strategies.
  • Dynamic Withdrawals. With this method, you only withdraw the income created by your retirement portfolio, leaving the principal untouched to continue earning and growing your income over time. The major advantage of this method is that your principal remains largely untouched. However, the income generated varies from year to year and inflation may outpace your withdrawals.
  • Fixed Dollar Withdrawals. With this method, you withdraw a fixed amount of cash each year throughout retirement. That allows for the automatic withholding of federal taxes and offers a simple method for managing your money. However, it does not account for inflation over time and may force you to liquidate more assets to accommodate withdrawals in down markets.
  • Fixed Percentage Withdrawals. Another simple strategy to follow is to withdraw a specific percentage each year from your retirement accounts. Unfortunately, it creates some volatility with some years offering more income and others offering less. Additionally, it may require you to deplete your retirement savings too soon.


Some people employ multiple strategies, mixing and matching as needed to give themselves adequate income from year to year as expenses (cost of living, medical care, etc.) grow while helping them to set more money aside to help their money last longer. It may take a while to find your comfort zone or even working with an expert to find the best way to put your money to work for the retirement you’ve dreamed of.