How Much Should You Take From Your Retirement Account Each Month

Written by , February 10, 2012

How Much Should You Take From Your Retirement Account Each MonthThere are a lot of online calculators to help you figure out how much you should be saving for retirement. While it’s certainly important to come up with a plan to reach that goal, the total amount you accumulate in your 401(k), IRA and other retirement accounts is only one side of the equation.

In order to make sure that you’re able to live a comfortable and healthy retirement, you also need to determine how much you should be taking out of your retirement accounts each month. Ultimately, you’ll have to balance your living expenses with not depleting your resources too soon.

Here is some information and advice on the key factors to determine how much you should withdraw from your retirement account each month.

  • Your Desired Standard of Living in Retirement. If you desire a higher standard of living during retirement, you’ll need to withdraw more each month. It used to be a common goal to have a higher standard of living during retirement (since many people would expect that they are children will be living on their own, the mortgage on their primary would be paid off, and they’d have more time to enjoy leisure activities), but that’s generally not the case anymore. Most retirees these days simply desire not to lose too much in their standard of living once they fully retire.
  • Investment Return. You probably focus a lot on making sure that your investment returns are as high as possible before you enter retirement. But don’t forget that your account will still be earning even after your retirement begins. Some retirees assume that their investment funds should consist primarily or exclusively of safe fixed income investments. Such an approach can protect against principal loss, but might not provide enough growth to make sure that funds will be available far into retirement.
  • Other Sources of Income. What other sources of income will you have during retirement? Don’t forget to consider your social security income and any part time work you may still do even after you “retire.” The more money you have coming in from other sources, the less you have to take out from your retirement account each month.
  • Know the Minimum Distribution Rules. While most retirees are going to want to take out the minimum amount each month that allows them to live as they want, the rules governing most tax-advantaged retirement accounts require that once the account owner reaches age 70½ , he or she must begin taking “Required Minimum Distributions.” This is true even if the account owner continues to work and is not otherwise retired. If the rules on minimum distributions apply to you, make sure to follow them so that you can avoid any penalties.
  • Ongoing Tax Benefits. There’s a good chance that you’ll have several different retirement accounts, each of which may have different tax benefits. Depending on your income level in a given year, for example, distributions from a Roth IRA may be taxed differently than distributions from a traditional IRA. To the extent you can, make sure your withdrawals do not raise your overall tax burden.
  • Whatever you decide on how much to take from your retirement account each month, make sure to periodically revisit your calculation in order to verify that none of your underlying assumptions have changed.

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