Retirement withdrawal strategies | BlackRock (2024)

FAQs

What is the best order to withdraw money in retirement? ›

There are several approaches you can take. A traditional approach is to withdraw first from taxable accounts, then tax-deferred accounts, and finally Roth accounts where withdrawals are tax free. The goal is to allow tax-deferred assets the opportunity to grow over more time.

The 7% rule in retirement refers to a strategy where retirees withdraw 7% of their retirement savings annually to fund their retirement lifestyle. This approach aims to balance providing sufficient income while preserving the principal for as long as possible.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside. For example, if you aim to take out $2,000 per month, you'll need to set aside $480,000. For $3,000 per month, you would need to save $720,000, and so on.

Deferring Social Security payments, rolling over old 401(k)s, setting up IRAs to avoid the mandatory 20% federal income tax, and keeping your capital gains taxes low are among the best strategies for reducing taxes on your 401(k) withdrawal.

The 4% rule is a popular retirement withdrawal strategy that suggests retirees can safely withdraw the amount equal to 4% of their savings during the year they retire and then adjust for inflation each subsequent year for 30 years.

This money will need to last around 40 years to comfortably ensure that you won't outlive your savings. This means you can probably boost your total withdrawals (principal and yield) to around $20,000 per year. This will give you a pre-tax income of almost $36,000 per year.

It may be possible to retire at 45 years of age, but it depends on a variety of factors. If you have $500,000 in savings, then according to the 4% rule, you will have access to roughly $20,000 per year for 30 years. Retiring early will affect the amount of your Social Security benefit.

As of June, there were roughly 497,000 so-called retirement-created millionaires in the U.S., according to the wealth management firm, which analyzed balances across 26,000 of its customers' accounts. Nearly 399,000 Americans also have a least $1 million in an individual retirement account.

What is a good monthly retirement income? ›

The ideal monthly retirement income for a couple differs for everyone. It depends on your personal preferences, past accomplishments, and retirement plans. Some valuable perspective can be found in the 2022 US Census Bureau's median income for couples 65 and over: $76,490 annually or about $6,374 monthly.

For example, if you have retirement savings of $1 million, the 4% rule says that you can safely withdraw $40,000 per year during the first year — increasing this number for inflation each subsequent year — without running out of money within the next 30 years. Of course, the 4% rule isn't perfect.

If you're at least age 59½ and your Roth IRA has been open for at least five years, you can withdraw money tax- and penalty-free.

A hardship distribution is a withdrawal from a participant's elective deferral account made because of an immediate and heavy financial need, and limited to the amount necessary to satisfy that financial need. The money is taxed to the participant and is not paid back to the borrower's account.

A withdrawal is a permanent hit to your retirement savings. By pulling out money early, you'll miss long-term growth. Though you won't have to pay the money back, you will have to pay the income taxes due, plus a 10% penalty if the money does not meet the IRS rules for a hardship or an exception.

In this case, the conventional wisdom goes that you should withdraw from your taxable accounts first, then tax-deferred, then tax-free. That's because the money you take from a taxable account (such as a brokerage account) is likely to be taxed at the rate for capital gains or qualified dividends.

As a guideline, consider drawing funds in this order: Draw from bonds maturing in the next 12 months, dividends, interest, Social Security and pensions.

A 401(k) may provide an employer match, but an IRA does not. An IRA generally has more investment choices than a 401(k). An IRA allows you to avoid the 10% early withdrawal penalty for certain expenses like higher education, up to $10,000 for a first home purchase or health insurance if you are unemployed.