After decades of saving, planning and investing for retirement, the time has finally come to tap into your savings. But turning a solid portfolio into a regular income without depleting your capital prematurely is not a task to be taken lightly.
A good retirement plan doesn’t stop at accumulation, it must include a suitable withdrawal strategy. Here’s how to make your Individual Retirement Account (IRA) last, while making the most of your retirement with the support of your Social Security income.
Understanding the stakes of a good IRA withdrawal plan
Once retired, many Americans’ biggest fear isn’t a stock market crash or an unexpected medical bill: it’s running out of money before the end of their lives.
That’s why a disorganized or overly aggressive withdrawal can ruin years of preparation. An effective strategy must meet two often contradictory objectives: Covering your current needs while preserving your capital for the future.
The 4% rule: A starting point, not a law set in stone
The famous “4% rule” recommends withdrawing 4% from your IRA portfolio each year in the first year of retirement, then adjusting this amount in line with inflation.
This simple principle is designed to guarantee you 30 years of income. But beware that if you retire in weak markets, you may need to adjust downwards to avoid depleting your savings too soon.
For example, with a portfolio of $500,000, an initial withdrawal of $20,000 seems reasonable. But if inflation rises or markets fall early in retirement, a steady withdrawal may prove too ambitious.
That’s why many advisors recommend using this rule as a benchmark, not an automatic one.
Dynamic strategies: Adapting withdrawals to reality
A dynamic withdrawal strategy involves modulating your withdrawals according to the performance of your IRA investments.
In a good year, you can afford a more generous withdrawal. In difficult times, you reduce your withdrawals. This approach offers greater flexibility than the 4% rule, while ensuring a degree of financial stability.
Some experts go even further. By setting withdrawal “floors” and “ceilings”, you can anticipate the unexpected without compromising your standard of living. This method is particularly useful in an uncertain economic environment, where inflation and markets can be volatile.
Smart tax management: The order of withdrawals counts
Not all retirement accounts have the same tax treatment. Withdrawals from a Traditional IRA account are taxed as ordinary income, while those from a Roth IRA are tax-exempt (under certain conditions). Taxable accounts, on the other hand, may offer more favorable treatment via long-term capital gains.
To optimize your tax situation, some experts recommend following a strategic order:
- First, withdraw your non-taxable liquid assets (passbooks, savings accounts).
- Next, your taxable accounts (brokerage portfolios).
- Then your tax-deferred accounts (Traditional IRA, 401(k)).
- Finally, tax-exempt accounts (Roth IRA).
This allows you to smooth your taxable income over time, avoid bracket creep and grow your investments tax-free for longer.
Anticipate RMDs and smooth your withdrawals
Starting at age 73, Required Minimum Distributions (RMDs) become mandatory for Traditional IRA accounts. These forced withdrawals can push you into a higher tax bracket if you haven’t anticipated them.
An often-recommended strategy is to make Roth conversions in the years before RMDs, when you’re in a lower tax bracket (for example, between your retirement and the start of Social Security benefits).
This allows you to transfer a portion of your savings to a Roth account, potentially paying less tax today than you will tomorrow.
The importance of Social Security in the equation
Your Social Security benefits are a stable, guaranteed income pillar. Delaying their activation can significantly increase your monthly payments.
Every year you wait until age 70 gives you around 8% extra income, according to Bankrate. A valuable bonus for making your capital last.
A good retirement planning plan will combine these benefits with your IRA withdrawals to produce a smooth, tax-optimized “retirement salary”.
Securing retirement withdrawals: The “buckets” strategy
The “three buckets” method involves dividing your savings into three compartments:
- Short-term (1 to 3 years): Cash or very secure Bonds to cover immediate expenses.
- Medium-term (3 to 10 years): Quality Bonds or balanced funds.
- Long-term (over 10 years): Equities or assets with high growth potential.
This structure enables you to weather stock market storms without having to sell your assets at a loss. You can continue to generate returns over the long term while securing your immediate needs.
A proactive strategy, not a fixed one
Making your IRA last depends not only on the amount you save, but also on the decisions you make after you retire.
By combining tax-smart withdrawals, flexible planning, anticipation of RMDs and good coordination with your Social Security income, you maximize your chances of enjoying a comfortable retirement with no unpleasant surprises.
Take the time to review your plan each year, taking into account changes in your health, your projects and tax laws.
Above all, don’t hesitate to consult a financial or tax advisor to build a tailor-made strategy. Because living well in retirement also means having the peace of mind of knowing you have a solid plan.
IRAs FAQs
An IRA (Individual Retirement Account) allows you to make tax-deferred investments to save money and provide financial security when you retire. There are different types of IRAs, the most common being a traditional one – in which contributions may be tax-deductible – and a Roth IRA, a personal savings plan where contributions are not tax deductible but earnings and withdrawals may be tax-free. When you add money to your IRA, this can be invested in a wide range of financial products, usually a portfolio based on bonds, stocks and mutual funds.
Yes. For conventional IRAs, one can get exposure to Gold by investing in Gold-focused securities, such as ETFs. In the case of a self-directed IRA (SDIRA), which offers the possibility of investing in alternative assets, Gold and precious metals are available. In such cases, the investment is based on holding physical Gold (or any other precious metals like Silver, Platinum or Palladium). When investing in a Gold IRA, you don’t keep the physical metal, but a custodian entity does.
They are different products, both designed to help individuals save for retirement. The 401(k) is sponsored by employers and is built by deducting contributions directly from the paycheck, which are usually matched by the employer. Decisions on investment are very limited. An IRA, meanwhile, is a plan that an individual opens with a financial institution and offers more investment options. Both systems are quite similar in terms of taxation as contributions are either made pre-tax or are tax-deductible. You don’t have to choose one or the other: even if you have a 401(k) plan, you may be able to put extra money aside in an IRA
The US Internal Revenue Service (IRS) doesn’t specifically give any requirements regarding minimum contributions to start and deposit in an IRA (it does, however, for conversions and withdrawals). Still, some brokers may require a minimum amount depending on the funds you would like to invest in. On the other hand, the IRS establishes a maximum amount that an individual can contribute to their IRA each year.
Investment volatility is an inherent risk to any portfolio, including an IRA. The more traditional IRAs – based on a portfolio made of stocks, bonds, or mutual funds – is subject to market fluctuations and can lead to potential losses over time. Having said that, IRAs are long-term investments (even over decades), and markets tend to rise beyond short-term corrections. Still, every investor should consider their risk tolerance and choose a portfolio that suits it. Stocks tend to be more volatile than bonds, and assets available in certain self-directed IRAs, such as precious metals or cryptocurrencies, can face extremely high volatility. Diversifying your IRA investments across asset classes, sectors and geographic regions is one way to protect it against market fluctuations that could threaten its health.