As you plan ahead for retirement, you’ll want to work with your wealth advisor on a tax-efficient strategy for withdrawing income from various retirement accounts. One of the first steps is estimating how much income you’ll need monthly and annually.
Determine Your Income Needs
A helpful way to estimate your income needs in retirement is to analyze your current, pre-retirement expenses. Categorize them into essential (nondiscretionary) and nonessential (discretionary) expenses. Then, consider factors such as additional travel, relocation and lifestyle choices during retirement, as well as health care costs. Your life expectancy is a key factor, of course: It helps to determine how much total income you might need to take from various accounts over the course of your retirement.
Adjust Your Investment Mix
Your investment allocation reflects a balance among your goals, risk tolerance and time horizon. If you plan to leave an inheritance, you might want a portion of your assets invested more aggressively with the goal of additional appreciation. From a retirement income perspective, you’ll want to make sure you have enough liquid funds to cover up to several years’ worth of expenses. That way, your more growth-oriented investments can be left alone to potentially appreciate. Your wealth advisory team can help you fine-tune your expected income needs.
Identify the Sources of Your Income
You likely have a mix of investment accounts—401(k)s, IRAs and others. When developing an income strategy, evaluate the tax consequences of withdrawals from each account type. Distributions from taxable accounts may incur capital gains taxes, for instance, while those from tax-advantaged accounts, such as traditional IRAs or 401(k)s, may be subject to the higher ordinary income tax rate. The sequence in which you tap your various accounts can significantly impact the total assets left for heirs.
Sequence of Withdrawals
Your withdrawal-sequencing strategies should be custom-designed to fit your unique situation and goals. Many retirees withdraw from taxable accounts first, followed by tax-deferred accounts and finally Roth IRA or Roth 401(k) accounts. In addition to these accounts, wealthy individuals must often factor in additional sources of income such as rental properties and business interests.
Limit Estate Tax
Part of your wealth planning may include leaving a legacy. The size of the estate that you leave to heirs will be determined in part by the total income that you take over the course of your retirement. In many cases, planned income distributions will leave the estate above the estate-tax threshold, which is currently $12.92 million for individuals and $25.84 for married couples.1 Your wealth advisor can help you lower or eliminate estate-tax liability through a number of planning techniques including gifting, philanthropy and the strategic use of trusts for generational wealth transfer.
Plan Ahead for Retirement Income
If you plan to take early retirement within the next two years, it’s wise to start creating a plan for income now. Your plan can always be adjusted should your goals and situation evolve. By planning your retirement income carefully, you can enjoy a fulfilling retirement while ensuring the most prosperous possible future for those you care about.
Footnotes
1“What’s New – Estate and Gift Tax”
This article is being provided for informational and educational purposes only. It should not be construed as an individualized recommendation or personalized advice. Please contact your financial, tax, and legal professionals for more information specific to your personal situation. The information and opinions provided have been obtained from sources deemed reliable, but we make no representation regarding the accuracy or completeness of the information.
AdvicePeriod does not provide all services listed in this piece. Some services may be provided by affiliates and may be subject to additional fees.
AdvicePeriod is another business name and brand utilized by both Mariner, LLC and Mariner Platform Solutions, LLC, each of which is an SEC registered investment adviser. Registration of an investment adviser does not imply a certain level of skill or training. Each firm is in compliance with the current notice filing requirements imposed upon SEC registered investment advisers by those states in which each firm maintains clients. Each firm may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by an advisor with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about Mariner, LLC or Mariner Platform Solutions, LLC, including fees and services, please contact us utilizing the contact information provided herein or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you invest or send money.
For additional information as to which entity your adviser is registered as an investment adviser representative, please refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) or the Form ADV 2B provided to you. Investment adviser representatives of Mariner, LLC dba Mariner Wealth Advisors and dba AdvicePeriod are generally employed by Mariner Wealth Advisors, LLC. Investment adviser representatives of Mariner Platform Solutions, LLC dba AdvicePeriod, are independent contractors.
