Where should I pull income in the first years of retirement?

Optimizing your retirement income strategy is crucial for maximizing your financial resources and minimizing taxes. Understanding the best order to withdraw your funds can significantly impact your retirement savings’ longevity and tax implications. Here are three places you should pull income from during your first years of retirement.

1. Start with Your Brokerage Account

Initially, consider withdrawing from your brokerage account. This approach is advantageous because it typically incurs lower taxes, primarily capital gains taxes, ranging from 0% to 15% based on your annual income. Utilizing your brokerage funds first allows you to leverage potentially lower tax rates, preserving more of your savings for future needs.

2. Move to Your IRA

After depleting the necessary funds from your brokerage account, the next source should be your Individual Retirement Account (IRA). Withdrawals from your IRA are taxed as ordinary income, so timing these withdrawals is essential to manage your tax bracket effectively.

3. Save Your Roth IRA for Last

The Roth IRA should be the last reservoir you tap into. The unique advantage of Roth IRAs is their tax-free withdrawal feature, making them invaluable for long-term financial planning. Additionally, keep in mind that under the latest IRS regulations, inherited IRAs must be depleted within a 10-year period.

Consider Delaying Social Security

If you retire early, say at 60 or 65, and have substantial savings in a brokerage account, it may be wise to delay Social Security benefits until age 70. This strategy allows you to use your brokerage funds at a lower tax rate initially. Meanwhile, you can convert your IRA to a Roth IRA, taking advantage of lower tax rates before Social Security benefits begin.

Contact us if you have more questions. Click here to schedule a consultation with one of our financial advisors.

Casey Smith
President, Wiser Wealth Management

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By Published On: March 22, 2024

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