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I’m withdrawing a bit from IRAs, ahead of RMDs in a few years, which will decide for me how much I’ll be taking out each year. For those of you who make voluntary withdrawals, do you go with a fixed percentage, like 4% every year, plus an inflation boost, calculated on Jan. 1 and taken at the beginning of the year? Or do you recalculate to reflect market change, and withdraw gradually throughout the year? Or wait till Dec. 31 when you know how the year went, and then take it?
I’m thinking this is sort of related to “decummulation”, which for me includes both retirement money and other savings socked away. 4% a year max spent out of all your assets? Or more variable?
I’m not withdrawing (yet), but am absolutely doing taxable Roth conversions from my rollover IRA. More conversion-bang for the taxable buck.
I’m withdrawing about 7.5% from my TIRA until I reach age 70 when I will start SS. Overall, my withdrawals are sub 4% of our entire portfolio, which is my general benchmark for withdrawals. I’ve set up an automatic withdrawal from the TIRA to create a monthly “paycheck”. Leaning on the TIRA for withdrawals now to smooth out our expected tax rate when RMDs kick in at age 73.
If you are inclined to be charitable then here is a different place to start to use a RMD strategically with a Qualified Charitable Distribution (QCD). If you’re 70½ or older, you can give up to $100,000 directly from your IRA to a charity. The QCD counts toward your RMD but isn’t taxable income, so you save on taxes, and the charity gets the full amount.
Key rules:
The donation must go straight from your IRA to the charity.QCDs can’t fund donor-advised funds or private foundations.Confirm with your IRA custodian it’s a QCD and keep a charity receipt.QCDs lower your taxable income, potentially reducing taxes on Social Security or Medicare. It’s a tax-smart way to give without dipping into other accounts.
I like starting from a baseline using the single life expectancy table the IRS publishes. Here’s a copy from Fidelity https://www.fidelity.com/retirement-ira/irs-single-life-expectancy-table It’s about 4% around age 62-63. You get that by dividing 100 by the number of years in the table for a given age. And that age is around when most people think about the 4% guideline.
Where it helps is that each year going forward I reset based on my actual investment experience, my actual age, and what I have actually already spent. And of course it’s still just a guideline.
In most cases, the people actually asking this question are the ones spending way less than this guideline would suggest. That would be us.
There are two IRS Uniform Lifetime Tables. A different one is for IRA owners with a sole beneficiary who is the spouse and is 10 years younger.
Yep. That would be us!
I like the reflective process of rethinking it each year. To remind myself by reviewing my investments that I’m not able to outperform the markets writ large. And to review what I spent, and the taxes incurred int taking out of tax-sheltered retirement accounts to spend it.
If I had a lifetime do-over, I’d never have contributed to an ordinary IRA but didn’t have a chance at Roths till late in my career and so have very little in those instruments. Certainly, taxes are a pay-me-now, pay-me-later deal.
Overall, I took none of my withdrawals until I reached RMD age, of course not everyone’s situation allows that. Once RMD started, I generally take the minimum as directed by the government tables. However, in 2024 I wanted to build up some cash reserves so took the calculated maximum and not raise my IRMMA contribution. It is tricky, but do what works for you. I generally like to let my stocks grow. In the last 56 years it has all worked out, that I had only 9 yearly losses, so most times my nest egg was growing.
Thanks for sharing your strategy.
“…most of the time my nest egg was growing” The essence of successful saving for retirement, or anything else.
If you are in your 60’s and taking less than 4% out of fear of running out of money, respectfully, you should seek psychiatrics help, just saying,,,
I abhor even the thought of paying quarterly taxes. Therefore, we take our largest distribution in December and have a substantial portion of it withheld for taxes. Our tax preparer informed us that the IRS looks at taxes paid directly from a huge IRA distribution as if the taxes were paid evenly throughout the year. Regarding the amount, from age 67 to 73 we took 4%/yr and from 74 onward, we added cumulative inflation so we’re up to 6.6%/yr now.
Sorry Kevin but I am confused. You state you are taking 3% per month which I figure is 36% of your total investment year. However, you could be saying that you take 3% of your total funds and divide that amount by 12, and that is the amount you take out per month. That would work like: $200,000*.03 = $6,000/12 = $500 per month; however, what you appeared to state was: $200,000*.03=$6,000 per month withdrawal. Please de-confuse me as to which you are using.
Thank you
Rick:
Sorry to confuse. NOT Per Month…Per Year, but withdrawn monthly.
Some folks will take their annual withdrawal in January, for instance, and deposit it in a Money Market Account. I simply determined the annual amount, divided it by 12, in my case it was $1802.50, and have it deposited in my checking account the 28th of each month.
Years ago I tried to time the market with an inherited IRA holding stocks, which required RMDs. It didn’t work. Now my system is to make sure there is two years worth of withdrawls in a federal money market fund with the provider and take the withdrawls quarterly. That way there is no market risk. The MM fund is financed through rebalancing of appreciated assets.
A great lesson learned years ago with inherited funds rather than my own retirement assets.
GREAT QUESTION Catherine!
I am in retirement. I retired January 2024. I started 2024 taking 3% monthly. In January 2025, because 2024 was a positive performance year, I increased my monthly withdrawal to 4%.
At the end of March, I considered suspending my 4% withdrawals or lowering them, but I referred to my financial plan and my Investment Policy Statement. My IPO states, “I will adjust my withdrawals annually, on January 3rd, for the year. I will not make any changes, based on market volatility, until the following January 3rd. In positive performance years, I may increase the withdrawal percentage by as much as the COLA of Social Security, but it is not mandatory. In negative performance years, I will reduce my withdrawal rate by no more than 2%, although a 1% decrease is mandatory.”
I believe the time to make decisions is when you are not under pressure and you are not responding to temporary market fluctuations. I am 74 years old. I experienced 1987, 1993-94, 2000, 2008, 2020, 2022. During all those events, I was employed so this was a moot point. I was not taking withdrawals for income. But neither did I make any changes to my investment scheme at the time. In 2008 and 2020, I actually “bought the dip” on at least 6 occasions, but primarily, “Stayed the Course.”
Withdrawal rates are dependent on so many variables that rules of thumb are rarely appropriate. Based on your comment about decumulation and 4%, if you have $1M, you would have $40K plus Social Security. If you had $2M, $80K plus Social Security. I waited until age 70 to file for my benefits since I was still working full-time and was earning over $150k annually. My wife was a homemaker for the last 35 years of our 51 years (so far) marriage.
In our case, our Social Security benefits alone exceed our retirement expenses (including charitable giving, but not travel) annually. Our additional annuity income, combined with our 4% portfolio income, provides our “lifestyle” income.
Were we to experience a true market meltdown, ala 2020, we could suspend our 4% dollars and still have @$100,000 income vs. @$62,000 retirement expenses. Our grocery bill might need to be “tightened up” a little, but we would still be quite comfortable, since we are debt free and have no mortgage payments.
Good luck to you and happy retirement.
Thanks!
I really like your written investment policy statement. Probably a good idea if I write one up too!
Everyone’s situation is different, and many experience idiosyncratic changes, sometimes suddenly. Yet it seems we share our end goals, saving/investing for the time when we are no longer employed (employable) and hoping to go the distance without too many troubles and limited dependency on others.
That’s why I’m interested in other people’s withdrawal strategies as I face my own situation. I appreciate you sharing yours.
Catherine:
The IPS, determined in advance, helps you “stay the course” in times like these.
It is something I taught financial advisors for years, and I like to “walk the walk”, as they say! It does really help.
Good Luck in Retirement!
I’m doing the same as you, drawing early to minimize the RMD sometime down the road. Started out at 2% and haven’t changed since I started several years ago.
Thanks for sharing this. Very helpful.
4% withdrawal for me is just a ‘marker’ indicating sustaining investment principle at a 7% annual return. Establishing a realistic annual financial (budgetary) need is what I planned to draw and do today. I measured my retirement investments (e.g. IRA, 401k, 403b…) to be a stand alone financial vehicle for my annual needs before considering (upcoming) fixed income vehicles (e.g. OASI, pensions…). My goal was to have enough to manage my anticipated annual needs to meet that 4% marker. I kept working and saving until that 4% marker was met. My readings show statistically most Americans will not meet the 4% marker and will need to work well into their 60’s and beyond.
Like many questions there isn’t a single correct answer to any of yours. Prior to RMDs, some folks do withdrawals because they need the $$ to pay their bills. Others may be worried about the effect of what their RMDs might have on their future tax bills and do Roth conversions. So, the first thing I would ask you is why are you withdrawing from your IRA?
If you need the funds to pay expenses, the % isn’t material. If you don’t need the funds, then you have to think about income taxes. During retirement, just as during your working life, a big issue is how to fund retirement with the lowest possible income tax consequences. There are several models available at the Boglehead website that can help you do the math for this solution. Selling appreciated assets in your taxable account might generate less tax than IRA withdrawals. Others may want to preserve these potential capital gains to pass these assets tax free to their heirs.
As to the timing of when to do a prior to RMD IRA withdrawal, that may also depend on the planned usage of the funds. If you want to live on the money, you might do monthly transfers. If you just worry about how large RMDs might be and you don’t plan to spend the money, then you could wait until December to take out the funds.
And, of course, having taxes withheld from IRA withdrawals is advantageous since the IRS likes withholding better than estimated tax payments. If you pay 100% of your tax liability through withholding from an IRA withdrawal in December you can totally avoid making estimated tax payments.
Excellent response and very sound thinking!
stelea99,
you wrote an excellent response!
I agree. Assuming you don’t need the funds now, it comes down to minimizing taxes (including IRMAA, loss of healthcare premium tax credits, etc.) during your long retirement journey.
My process has two parts. Doing the necessary calculations and deciding the actual withdrawal(s).
I usually take any withdrawal in the first half of the year. My withdrawals have been variable percentages as low as 3.5%. 2025 will be my 7th year of withdrawals. I’ll follow the same approach this year as in every other year.
I use the IRS table for RMDs as a starting point. I would prefer to keep my federal income tax as low as possible so that is a factor. Taking more increases the tax paid. As for an appropriate withdrawal I’m aware of several calculation methods including the progressive indexed one you mentioned, using guardrails for situations such as the current one, etc.
I then look at my estimated and projected budget for the year. Will I have sufficient income to cover all of the bills?
As a final step I look at my “lifetime planner” which indicates how long this nest egg will last with annual withdrawals. The planner includes other income, expenses, inflation, possible gains, unusual expenses, etc.
Using the above I make a decision of the amount to withdraw.
I have a portion of my traditional IRA as cash, so I don’t have to sell anything.
Of course, I can take the minimum withdrawal as mandated and if more funds are necessary later in the year I can take a second withdrawal.
If I take more than is actually spent that year, I either invest the surplus in a brokerage account or in a high yield savings account or CDs.
In 2023 I had unusual medical bills and for that reason I took an amount from my Roth IRA, which did not increase the taxes paid. If not for the Roth that larger withdrawal would have been from my traditional IRA.
Like William below, we have been taking voluntary distributions with the intention of keeping future RMDs lower, while maintaining our 12% tax rate. I think the manner in which you take them, lump sum VS monthly, is whatever works best for you.
I’ve just finished my 2024 return so am in the right frame of mind to look more closely at what my RMDs could look like and the taxes associated with spreading out my withdrawals a bit. I too want to spread the tax hit across more years. Best time to do that was the first two years after my spouse passed away but I was preoccupied then, keeping my family and myself going, especially once the pandemic hit. So I’m operating from a weaker position than 5 or 6 years ago.
Still, I am grateful to be in a pretty good position overall and hope not to have to lean on my kids at a time when they are just getting started.
In the past my RMD (I am 81) was my spending budget for the year taken out as soon as I could after 1/1. I would deposit it with laddered 4-8-13-and 26 week bonds from Sam. My other non-IRA would just fill in as needed.
Last year I changed to monthly RMD distributions (less 25%for taxes) and went to 4% on non-IRA withdrawals also on a monthly basis, not adjusted for inflation.
I now must do a bit more planning for big expenses like a cruise or overseas adventure. Before, it was free range spending until the pot was empty.
Spending will probably be at an inverse relationship with my age for everything except maybe healthcare. I an hoping it comes out just right.
This is very helpful!
Is the need for “a bit more planning” related to your nest egg getting whittled down or to recent inflation?
(My nest egg feels smaller now compared to the start of 2021.)
Not really. It is more cash flow management. Juggling cc cut off dates and need for the payment.
For us we have been taking voluntary traditional IRA distributions in excess of required minimum distributions (RMD) with our current marginal tax brackets/rates vs. projected future marginal tax brackets/rates being the major deciding criteria on withdraws in excess of RMDs. I expect we all will have better information late in 2025 as to what those future tax brackets may be for the next 8 to 10 years. In summary we are trying to smooth tax rates to minimize our lifetime present value tax costs and other investment expenses.
I expect in the long term the financial markets will continue their long term growth so if the current market gets into a deep bear market I will consider some Roth conversion of equities or bond assets from our traditional to Roth.
I am 75 in 2025 and in hindsight I wish I had made more Roth contributions or conversions before my social security benefits began at age 70.
For the past few years Morningstar has calculated what a starting withdrawl rate could be for a 30 year retirement based on the current valuation of the stock market, and on their projections of returns going forward for stock and bonds. Their projections are quite conservative and they still come out at about 4% (I think last year it was 3.7% as equity valuations were quite high) with annual inflation increases so I think starting at 4% is reasonable as they take into account down markets during that 30 years period.
You could also use the IRS RMD factor for your age and then divide your end of year balance by the factor. They account for someone living to 102. Ironically that could have been a problem for my mother in law who just passed away at over 103. As far as I know she never had any investments.
I cap voluntary withdrawals from my 403(b) to an annual amount just slightly more than what my state will allow as an exclusion from income; the state exclusion currently equals the maximum possible Social Security benefit (which prompted me in the first place to take voluntary RMDs, since I am not yet claiming SS). I withdraw quarterly, with enough withholding to cover all my estimated tax payments. The quarterly amounts vary, depending on cash needs, but sum to the annual amount. And since the 403(b) is almost entirely in TIAA’s traditional/guaranteed fixed income pool, I have not considered market performance as a factor in how much to withdraw.
Thanks!
Your strategy brings up a corollary consideration for me. I have a TIAA account, with some of the money in the guaranteed pool and some in equities. I started taking interest only distributions from the guaranteed pool (something that can be done, must start before age 70) but that’s all so far. It seemed like a way to ease into withdrawals without causing much of a tax downside, though it’s taxed as ordinary income I believe.
Hi, Catherine. I take “one-time cash withdrawals” from TIAA; they are not part of any scheduled distributions and are indeed taxed as ordinary income. If all goes as estimated, the amount I draw now annually will be about the same as the RMD I’ll need to take in six years at age 73 — I should be fully eased by then!
Great question. I’m not yet retired, but I am very curious on how this is actually executed. My plan is to have 3 years of expenses socked away and during the down years I might just skip a withdrawal except for RMDs. Another reason I plan to take social security earlier rather than waiting. The hope is that i would reduce the drag on 401ks during the down markets.