How to Plan Spending in Retirement
But there are limits: Traditional IRAs and workplace plans mandate that you begin taking required minimum distributions by age 70 1/2. Your taxable investment portfolio, with its 15% long-term capital gains, has no such distribution requirements. These funds can keep growing until you call on them -- or pass them along to your heirs. The same is true for a Roth IRA.
In retirement, you could dip into your taxable accounts first in order to allow your tax-deferred savings to grow as much as possible. This is a good idea if you believe that your income tax bracket will be lower later in retirement, or if you feel taxes may rise after the presidential election this fall.
Alternatively, you may think your tax rate will stay steady -- or even increase --throughout your retirement. In that case, you could let the money subject to the lowest tax rate (your Roth IRA and your taxable investments) keep growing while you take distributions from your tax-deferred accounts.
You also have choices with regard to your Social Security retirement benefits. The benefits you receive from Social Security count as regular income, but only 85%, at most, of your benefits is taxable. For every year you delay taking benefits after your full retirement age (66 years old for those born between 1943 and 1954), your monthly Social Security checks increase by 8%. The 8% increases stop at age 70.But when you should take Social Security depends mostly on your health and expected longevity. The Social Security Administration can help you make this calculation by determining your break-even age. If you expect to live beyond the break-even age, it would likely be to your financial advantage to delay taking Social Security distributions. Ultimately, the appropriate order of withdrawals depends on your specific financial situation. Your best bet is to sit down with a certified financial planner who can analyze your situation and determine what makes the most sense for you.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV