How to Spend Your Retirement Savings

August 1st, 2011, by

Q: I am going to retire and have no idea in what order I should spend my money. Do I deplete my IRA first, my savings or my retirement income?

Cambridge, MA

A: When and how to start taking your retirement income is a complicated thing. So much depends on your lifestyle, how much you have and where the money is invested or saved.

A financial adviser could help you answer a lot of your questions. Of course, finding a good adviser can be challenging. If you’re still employed, start by asking co-workers. If you’re retired, ask for recommendations from other retirees. You can also search for a planner by going to the sites of the National Association of Personal Financial Advisors, the Financial Planning Association or the Certified Financial Planner Board of Standards.

In the meantime, check out Nationwide’s “Top Ten List of Retirement To-do’s,” which will help you think about the things you need to do to retire.

You might also read a recent report by the Government Accountability Office about the difficult choices in deciding how to withdraw your retirement income. It gives some great examples on how to take your retirement money.

For example, the GAO interviewed experts who tended to recommend that retirees draw down their savings strategically and systematically and convert a portion of their savings into an income annuity to cover necessary expenses or opt for the annuity provided by an employer. The experts also frequently recommended that retirees delay receipt of Social Security benefits until they reach at least full retirement age. They also suggested people draw down on their savings at an annual rate, such as 4% of the initial balance. The draw-down rate should preserve some liquidity—immediately available funds—in case of unexpected events, such as high medical costs, the GAO said.

Also remember, after you reach age 70½, you’re required by the IRS to take a certain amount out of your traditional IRAs and other tax-deferred accounts every year. You’ll want to draw these required minimum distributions first before tapping other accounts.

Last modified: August 1, 2011 at 2:20 pm