How to Plan Your Retirement Withdrawal Strategy
Although saving for retirement is one of the most critical aspects of your investment journey, experts agree that managing your withdrawals is equally essential. This is because sometimes, you may be forced to make your money last nearly as long as you worked. So, how do you make your money last 30 or more years? Retirement withdrawals involve two parts: strategy and mechanics. The mechanical aspect is all about a person’s discipline adhering to a predefined spending plan. This plan typically acts as a pay cheque that is structured so that the recipient never runs out of money.
On the other hand, the strategic part involves a deep analytical process using specialized software to figure out the best withdrawal strategies. Based on a person’s portfolio, the system dictates how much money will be withdrawn from each of the three tax brackets. People nearing retirement can also use this information to strategically distribute their investments into the three tax brackets (tax-deferred, taxable, tax-free) for maximum flexibility.
How Important is it to Have Cash on Hand?
Cash is the most liquid asset used to perform immediate economic actions such as paying debt or meeting daily needs. Unfortunately, most people don’t understand the benefits of having ready cash in hand. Some people even see it as a liability. But during uncertain times, cash, without question, is king. Why? Because cash guarantees immediate or near immediate liquidity to help meet your obligations without incurring losses. Simply put, you can still carry out basic economic actions without using a credit card, taking out a loan, or worse, liquidating your long-term investments when prices are unfavorably low.
Furthermore, money can be used to take advantage of ‘hot’ investment opportunities without disrupting your portfolio. So, the next time you think about liquid money, always remember that it does have a role, and it’s not necessarily a liability.
Inherited IRA Rules: Distribution and Beneficiaries
Inherited IRA accounts are for people who inherit retirement accounts when the original owner dies. For the most, if you’re the sole beneficiary of your spouse’s IRA, you can seamlessly take over the account. However, for a non-spouse beneficiary, some rules can impact your earnings and, therefore, your tax bracket. First, the IRA passed the Secure Act that states that beneficiaries must exhaust an inherited IRA within ten years of the account owner’s death.
Although there are no rules that dictate how a beneficiary withdraws money from the account, the account must be empty by the end of the 10 years. Furthermore, with a traditional IRA, each withdrawal is calculated as taxable income in the year you make withdrawals. So, before you start taking out money from your inherited IRA, analyze how those withdrawals affect your income. This way, you avoid jumping up a tax bracket while cushioning your peak earning years.
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