Retirement is the peak of the mountain that you’ve been climbing your entire life.  You’ve worked hard, endured much, and are ready for the duration of your trek to be gentler, less arduous, filled with many miles of ease and enjoyment.  Take care though because the journey down the other side of the retirement mountain can be slippery and dangerous if proper planning is not implemented.  Shifting from accumulation mode to distribution mode requires people to reframe their thinking.  You must go from what are the best strategies to grow my money to what are the best strategies to draw from my money.  Fortunately, there are many retirement withdrawal strategies to employ; they can even be combined and changed over time.  There is no right or wrong, but rather the best fit based on the client’s specific situation/needs.

Building a Base

Some retirement accounts such as Social Security, pensions and annuities provide guaranteed income.  They are built to provide income on a regular schedule.  Building a base helps you generate enough of this guaranteed income to meet basic needs.  Some individuals achieve this through purchasing an annuity with an inflation adjusted income rider.  Others delay the start of Social Security benefits to increase their payout (for each year you delay your payments go up by 8%.  For example, if a 66 year-old entitled to an annual Social Security benefit of $10,000 chooses to wait a year to claim it, they will forgo the $10,000 for the first year, but the following year, they will receive an annual benefit of $10,800, which will be adjusted for inflation each year for the rest of their life).

Account Sequencing

Account sequencing is a method for withdrawing funds that seeks to minimize taxes and allow money in long-term buckets to grow.  Retirees must be strategic about where they pull money from.  For many, the best approach is to withdraw cash from a combination of savings and investment accounts.  Here is an example of a popular order to use for those whose retirement assets are not substantial:

  1. Taxable accounts (brokerage account, savings/checking accounts, etc.) –  Withdrawals may qualify for lower dividend and capital gains tax rates instead of ordinary income tax rates.
  2. Tax-free investment accounts – Earnings are free from federal and/or state income taxes.
  3. Tax-deferred retirement accounts (401(k)s, 403(b)s, traditional IRAs, etc.) – You can potentially delay paying taxes on this money until RMDs are required.
  4. Tax – free retirement accounts (Roth IRAs) – You can grow this money more if you wait to pull from it, and the growth experienced inside this vehicle is not taxed. There is no RMD requirement either.

Systematic Withdrawals

Making systematic monthly withdrawals is a smart move as it provides the retiree with the cash flow needed, while allowing the remaining balance to grow.  A goal of systematic withdrawals is to leave your principal invested throughout your retirement. You strive to only withdraw the income your investments produce from interest or dividends.

Many retirees rely on the 4% rule, which proposes that withdrawing this amount the first year and inflation-adjusted withdrawals every subsequent year, will ensure there is enough money to last a 30 – year retirement.  This rule has come under scrutiny in recent years.  Several steep market drops in the past 26 years, combined with historically low interest rates, and increased life expectancies are all contributing factors causing many to put the 4% rule under a microscope, and trade it in for a customized cash flow plan based on an individual’s specific circumstances.  They then set up a fixed dollar withdrawal strategy or a fixed percentage strategy. Fixed-dollar withdrawals involve taking the same amount of money out of your retirement account every year for a set period.  You have a predictable annual income and can determine the amount to withdraw based on your budget in your first year as a retiree.  Fixed- percentage withdrawals involve withdrawing a fixed percentage of your account balance every year.  This is different from the 4% rule because you can choose a percentage other than 4% and because you keep the percentage the same every year instead of starting with a 4% withdrawal and adjusting upward based on inflation.

Manage Required Minimum Distributions (RMDs)

Required minimum distributions (RMDs) can increase a retiree’s taxable income significantly.  To get around this, many convert money from traditional retirement accounts to Roth accounts.  Roth IRAs tout many benefits; money in these accounts grows tax-free and withdrawals are also tax-free.  The challenge is that you must pay tax on the money converted from a traditional to a Roth account.  Some  believe the period between the time you retire and the time you turn 72 is the sweet spot for Roth conversions. The likelihood is that your income will drop after you stop working, and until you are required to start taking distributions, you have more freedom over the amount of money you withdraw each year. That will help you lower the tax bill on your Roth conversion.  Converting to a Roth IRA is complex.  There are many things to consider such as if a Roth conversion increases your modified adjusted gross income above a certain amount, you could pay much more than the $148.50 standard premium for Medicare Part B, which covers doctor visits and outpatient services.  Your inflated MAGI could also increase premiums for Medicare Part D, which covers prescription drugs.  The additional income from a Roth conversion could increase the portion of Social Security benefits that are subject to federal income taxes.

Bucket Strategy

A bucket strategy ensures you have three separate sources of retirement income:

  • Savings account that holds about 3 – 5 years of living expenses in cash.
  • Fixed – income securities such as government and corporate bonds, CDs. This is for money that will be needed in 5 – 10 years.
  • Equity investments such as stocks (more aggressive growth funds). This is for money not needed within the next 10 years.

Using this type of strategy keeps retirees from having to pull money from stocks in a down market because you draw from your savings account to cover your expenses and refill the bucket with money from the other two buckets.  The idea is that you refill your savings bucket by selling stocks when the market is up or selling fixed income securities if they’ve performed well.

Again, there is no wrong or right approach.  The key is finding the best fit per your specific situation that will minimize the tax bite and protect your assets.  Work with a financial advisor. According to industry experts, people who work with a financial advisor are twice as likely to be on track to meet their retirement goals.  Give us a call today at 410-824-1853 or visit us at

Sources: U.S. News Money/ Kiplinger/ Motley Fool/ Smart Asset

© Geier Asset Management, Inc. April 2021. Gregory Palacorolla, CFP ® is Director of Wealth Management for Geier Asset Management, Inc., a Registered Investment Advisor. The articles & opinions expressed in this material were gathered from a variety of sources, but are reviewed by Geier Asset Management, Inc. prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of April 2021 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual circumstances. In all cases, please contact your investment professional before making any investment choices. Geier Asset Management, Inc. is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.