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Strategies for Drawing Down Assets in Retirement

Strategies for Drawing Down Assets in Retirement

April 18, 2024

Are you nearing retirement? If so, you’ve likely been saving for decades to prepare for this significant life transition. There are many ways to save for retirement, but regardless of your method, it’s critical to handle this next phase of your life strategically if you want to help maximize your savings.

Just as there are many ways to save, there are various ways to withdraw funds from those savings. These funds will become your retirement income stream, so it’s critical to have the proper strategy. However, it can be challenging to navigate all the new tax rules and financial decisions you will need to make. To help, let’s review some common traps and pitfalls, as well as the best strategies for drawing down assets in retirement.   

Tax Rules 

Believe it or not, there are more tax rules to consider in retirement than when you’re working. And each decision you make affects more decisions—it’s like a domino effect.

An example: It’s important to have the right balance between tax-deferred accounts (like a 401(k) or IRA) and tax-free accounts (like a Roth IRA). If you don’t have a good balance and want to move things around, you could consider a Roth conversion, where you convert a portion from a tax-deferred account into a Roth IRA. 

However (and here’s where that domino effect kicks in), if you do that, not only can it affect your income taxes for the current year, but it could also impact how much you pay in Medicare payments, and how much tax you pay on your Social Security benefit.

There are a lot more moving parts to consider just like this one. One mistake or overlooked decision could result in an unexpected tax bill. But there’s hope. It is possible to actually lower or even wipe out taxes during retirement.

Portfolio Diversification

I’ve seen many retirees limit their portfolios to stable investments like bonds and CDs. My professional opinion is that it’s more important to maintain a balanced asset allocation during retirement. 

Given the historically low returns of CD and bond investments, the unpredictability of inflation, combined with whatever distributions you’re already planning to take, you’re putting yourself at major risk of running out of money during retirement if you don’t diversify.

Withdrawal Order

There’s a specific order for withdrawing income from your retirement accounts without jeopardizing your future. 

A smart way to do that is to carefully analyze your distribution plan if you have money in taxable, tax-deferred, and tax-free accounts. This helps you make wise tax decisions this year, and then apply that knowledge to your income strategy 10 years from now.

In other words, while taking money from one account right now might seem like a good idea, you should consider how that decision might play out in 10 years. 

Longevity Risk

It’s time to think about what would happen if you outlive your retirement savings. The human lifespan is getting longer, and making your savings last throughout your lifetime is essential.

A professional retirement planner can help you, working with you to find a sustainable withdrawal rate, a smart investment strategy, and suggestions for when to withdraw Social Security. All these decisions can affect your odds of having enough money throughout your lifetime.

Social Security Decisions

While it might be tempting to withdraw your Social Security benefits as early as possible at age 62, the sooner you start, the lower your benefit amount. It’s important to consider the long-term effects of that lower amount, and how it could potentially impact your lifestyle during your 70s, 80s, and 90s.

Additionally, if you’re still working and receiving a paycheck and you withdraw Social Security benefits, there are significant tax ramifications to consider—and even more when you add a Roth conversion into the equation.

Choosing the Right Medicare Plan

Thinking about retiring before age 65? Remember that Medicare doesn’t kick in until 65, which means you’ll need health insurance to fill the gap until Medicare is available.

Also, you’ll have a new set of decisions to make once you’re eligible to sign up: you can sign up for the Original Medicare (parts A and B) or a Medicare Advantage plan

If you choose Original Medicare, additional decisions include which Medicare Supplement plan you’ll need. Each option has a variety of variables, including price, coverage areas, co-pays, and deductibles. 

Keep in mind that if you don’t enroll in the right time frame, Medicare penalizes you with higher premiums for the rest of your life. It gets even more challenging if you work past age 65 and get health insurance coverage from your employer.

Work With a Professional

All these rules and regulations can be challenging to keep track of, especially when they have the potential to change every time there’s a new session of Congress. So, what’s the solution? Don’t get overwhelmed—get help. The right financial advisor can help you design a successful retirement strategy that leads to lasting financial freedom. I’d love to help you make your retirement dreams a reality. Email me at or call 916-967-3208 to see how I can help you pursue your ideal financial future. 

About Jim

James Callens is a financial advisor at GLH&C Financial Services, a full-service, comprehensive wealth management firm. Jim has over 30 years of experience in the financial industry and uses his extensive resources and knowledge to help his clients experience simplicity and clarity in their financial lives. Jim spent more than 20 years working for GE Financial Advisors, both in its insurance services department and as a regional manager and financial advisor. He took part in GE’s Six Sigma Quality Training program and completed the National Association of Life Underwriter’s four-year LUTCF course. Jim also earned his certificate in financial planning from the University of California at Davis. In 2011, Jim combined his own firm, Callens Financial Group, with GLH Financial Services, creating GLH&C Financial Services, so he could provide even more value to his clients. 

Jim lives in Folsom, California, with his wife, Melissa, and his four children, Jacob, Kristen, Grant, and Andrew. Together, they enjoy outdoor activities like kayaking, bicycling, and vacationing at Lake Tahoe. To learn more about Jim, connect with him on LinkedIn.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisors LLC nor any of its representatives may
give legal or tax advice. 

A diversified portfolio does not assure a profit or protect against loss in a declining market.