How to Pay Yourself in Retirement: 4 Proven Withdrawal Strategies

Transcript

Hi, I’m Brent with Scottsdale Wealth Advisory. One of the biggest concerns I hear from retirees is this: “How do I make sure I don’t run out of money?” 

You’ve saved for years through the accumulation phase of your life, but now it’s time to start using that money. And that shift from saving to spending is uncharted, even nerve-wracking, because, as I’ve said in a previous video, no one has ever trained you on the rules once you reach retirement, where the preservation and payout phase are most important.

Understanding Withdrawal Strategies in Retirement

In this video, I’ll show you how withdrawal strategies can help you pay yourself in retirement in a sustainable, tax-smart way. 

First, let’s clear something up. There’s no one-size-fits-all withdrawal strategy.

Why Personalization Matters in Retirement Income Planning

What works for you depends on numerous factors, including when you plan to take Social Security, how much of a payment you can count on, or how much income it takes to keep the lights on, to put food on the table, how much you’ve saved in taxable accounts versus tax-deferred accounts, where required minimum distribution is a consideration. 

That said, there are a few common approaches people use to structure withdrawals in retirement. Let’s start with the 4% rule.

The 4% Rule: A Starting Point, Not a Guarantee

You’ve probably heard of this one. It says you can withdraw about 4% of your portfolio in the first year of retirement and then increase that amount slightly each year for inflation. So if you retire with $500,000, that’s about $20,000 in year one.

It’s a helpful starting point, but it’s not a guarantee. It assumes your investments stay balanced and that the market doesn’t throw you too many surprises. 

Systematic Withdrawals: A Flexible Cash-Flow Option

The second option is systematic withdrawals. This is where you take regular withdrawals from your investments accounts, either monthly or quarterly. It can work well, but you need to be thoughtful about which accounts you pull from first, second, third, and how taxes might impact each one. 

The Bucket Strategy: Managing Risk and Liquidity

The third strategy is the bucket approach. If you’ve seen my earlier video on the three-bucket strategy, you’ll remember this one. The idea is to cover your near-term income needs with safe, liquid assets (your first bucket), while the rest of your portfolio continues to generate income and growth in the background. This helps you avoid selling stocks during a downturn because you’re not relying on market investments for your everyday income.

Annuities for Retirement Income Stability

And then there’s annuity income. If part of your retirement plan includes an annuity, that can provide a steady monthly income, regardless of what the market’s doing, essentially protecting you from the dreaded negative sequence of returns that I mentioned in an earlier video. If you don’t remember, go look it up to learn about it. Your retirement withdrawal strategies depend on it. 

Using Guaranteed Income to Cover Essential Expenses

That income can help cover your essential expenses like housing, groceries, or healthcare. And because it’s consistent, it reduces the pressure on your investments accounts, giving you more flexibility.

Matching Income Sources to Monthly Retirement Needs

Ideally, your monthly liabilities should be 100% covered by guaranteed income sources, such as Social Security, a pension, or an annuity, just to name a few. A lot of our clients find that having at least some guaranteed income helps them feel more confident spending their money in retirement. 

The Importance of a Smart Withdrawal Strategy in Retirement

Here’s what I want you to take away from this. The way you withdraw money in retirement is just as important as how you invested it. The right strategy can help your money last longer, reduce the impact of taxes, and take the stress out of budgeting. If you’re not sure which approach makes the most sense for your lifestyle, or how to blend different strategies together, I’d be happy to talk through it with you.

Thanks for watching, and I’ll see you in the next video.