How Much Can I Take From My IRA My First Year of Retirement?

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

You don’t want to spend down your IRA too quickly. Read on to see how to establish a safe withdrawal strategy. 

Some people enter retirement with no personal savings whatsoever. Seniors in that boat often rely heavily on Social Security and end up struggling financially for it.

But if you’re coming into retirement with a sizable IRA balance, it means you’re in better shape than someone with no savings. That doesn’t mean you don’t need to be careful about managing your money, though.

Your IRA might serve as a nice source of retirement income. But you also want that money — at least some of it — to last throughout your retirement. If you deplete your savings at any point, you could end up quite cash-strapped when you’re older and more vulnerable to things like medical expenses.

A recent Allianz survey found that 61% of Americans are more worried about running out of money in retirement than actually dying. Yikes.

The good news is that you can set yourself up to avoid that fate by managing your IRA withdrawals strategically. And that means being very careful from the get-go.

Withdraw funds with care

In many ways, managing your IRA during your first year of retirement can be tricky. That’s because retirement is new to you, and you may not quite have a handle on what your total spending entails.

Now it used to be the rule of thumb that withdrawing 4% of your savings your first year of retirement was a good idea. But many financial experts now think a 4% withdrawal rate is too aggressive, and that 2% or 3% is more appropriate. This would mean taking $20,000 or $30,000 out of your IRA your first year of retirement if you’re starting off with a balance of $1 million.

But rather than relying on these general guidelines, a better bet is to think about your specific needs. First, consider your expenses. It may be that you have two more years on your mortgage loan to pay it off. In that case, you might take a larger withdrawal your first year of retirement, but remove less money from your savings in future years once your home is yours outright.

Next, consider your other income sources. In addition to Social Security, you may be entitled to a payout from your employer. Maybe you accepted an early retirement package that’s left you with a small sum of money. Or maybe you were able to get paid out on unused vacation days. If you have extra funds, you could consider leaving your IRA alone during your first year of retirement — or at least withdrawing less.

Finally, think about your retirement goals. Maybe you have a few big trips on your bucket list, and doing them at a younger age is preferable. If that’s the case, you may decide to take a larger IRA withdrawal your first year of retirement and then scale back in future years, when you may not be traveling as much.

Put plenty of thought into your decision

It’s great to be in a position where you tap an IRA to pay your retirement expenses. But before you start withdrawing money from that account, take the time to come up with a game plan so you’re less likely to deplete your nest egg in your lifetime.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More