Strategies for Retirement Withdrawals That the Top 1% Adopt
Chillin' Through Retirement: Lessons from the Top 1%
Retirement doesn't have to be a rollercoaster ride, but for many, it's a time of worry - will my money last? The wealthy seem to be sailing through it with ease, though. Here's how the top 1% navigate their golden years - and how you can too, no matter your income level.
The Savvy High-Net-Worth Retiree's Playbook
Running out of cash in retirement is a common concern, especially when relying on the infamous 4% rule. But the wealthy see retirement as a marathon, not a sprint. Instead of sticking to one strict rule, they employ a combination of flexible, tax-smart strategies.
Alissa Todd, personal CFO and wealth advisor at The Wealth Consulting Group, explains, "With high-net-worth individuals, they have multiple income sources and diverse investment portfolios, so their strategies are more complex." These strategies may require expert assistance but offer valuable lessons for everyone.
Go Beyond the 4% Rule - Prioritize Your Accounts
The 4% rule is a good starting point, but the wealthy offer a more sophisticated approach. They intentionally withdraw from taxable, tax-deferred, and tax-free accounts strategically. This approach reduces their tax liability, keeping more cash in their pockets.
"Tax-efficient withdrawal sequencing is a big part of the withdrawal strategy with the goal of minimizing lifetime tax liability and preserving your portfolio," Todd says.
Roth Conversions - Lower Your Tax Burden
Roth IRAs are tax-free in retirement, unlike traditional IRAs. They don't require RMDs either. Many wealthy individuals leverage Roth conversions, converting their traditional IRA or 401(k) to a Roth IRA. This requires paying taxes now, but it can reduce future tax liabilities and RMDs.
Get Charitable - Save on Taxes and Give Back
Generosity often goes hand-in-hand with wealth. Charitable giving is a common part of the wealthy's financial plans, and it's not just about the warm fuzzies. Charitable contributions can lower an individual's tax liability, making it an effective tax-saving tool.
Collaborate with Experts - Optimize Your Strategy
To create an efficient withdrawal strategy, teamwork is key. Working with experts will help maximize your tax efficiency, ensuring you're paying the least amount possible.
"Understanding how taxes work is crucial. Working with their CPA, financial advisor, and estate planning attorney allows for a comprehensive approach," Todd recommends.
Tips for Average Retirees
You don't need millions to adopt these strategies, but create a strategic plan that addresses how and when to draw from various accounts. A strategic plan can significantly improve the sustainability of your retirement savings.
"A systematic drawdown plan helps you create income, preserve wealth, manage taxes, and prevent costly mistakes," says Todd.
Plan Withdrawals with Taxes in Mind
Being mindful of how and when you draw from different accounts can impact your overall tax liability.
By strategically withdrawing from tax-deferred accounts, Roth IRAs, and taxable accounts, retirees can reduce the amount they pay in taxes, potentially increasing the amount they can spend and preserving their wealth for longer.
"Being mindful and having a strategy in place on which accounts you're going to start taking withdrawals from first is important," Todd adds.
Make Charitable Donations - Lower Your Tax Bill and Help Others
Charitable giving is rewarding in more ways than one. It meets your philanthropic goals and lowers your tax liability, helping your savings last longer.
Work with a Team - Maximize Your Strategy
For a well-rounded withdrawal strategy, consult with experts who can guide you through all aspects of retirement.
"Having someone you can plan with so you're not doing it yourself is important. Work with a tax professional, a financial advisor, and an estate planning attorney so that it's being effectively managed," Todd suggests.
Regularly Review Your Plan - Adjust as Needed
The wealthy don't set it and forget it - neither should you. Revisit and make adjustments to your withdrawal plan to ensure long-term success.
"Any life event is when we would revisit or update a withdrawal strategy. For example, when a spouse passes away, that affects your tax filing status and RMDs. We keep an eye out for policy changes and tax law changes too," Todd adds.
The Bottom Line
Retirement isn't all about how much you save. It's about how strategically you withdraw your money and spend it. Adopting some of the wealthy's strategies can improve your chances of financial stability in retirement.
"Proactive planning is key. Sometimes these strategies are layered, but doing them with intention can offer more favorable results," Todd concludes.
So there you have it - take control of your retirement with a well-thought-out withdrawal strategy. You'll be sailing through your golden years in no time.
- The wealthy implement a combination of flexible, tax-smart strategies to navigate their retirement, and these strategies offer valuable lessons for everyone, regardless of income level.
- Alissa Todd suggests creating a systematic drawdown plan to create income, preserve wealth, manage taxes, and prevent costly mistakes, which can significantly improve the sustainability of retirement savings.
- Charitable contributions can lower an individual's tax liability, making it an effective tax-saving tool, while also meeting philanthropic goals.
- To create an efficient withdrawal strategy, working with experts such as a CPA, financial advisor, and estate planning attorney will help maximize tax efficiency and ensure the least amount paid in taxes.
- Regularly reviewing and adjusting the withdrawal plan as needed is essential for long-term success, as life events and policy changes may require updates to the strategy to maintain financial stability in retirement.
