How to Withdraw From Retirement

Use your retirement funds wisely.

You spend your entire working life preparing for a comfortable retirement. Knowing how to withdraw the money you have so diligently saved is just as important as building up that nest egg in the first place. Calculating how much money you will need and how much you can expect from other sources will help your savings last longer and help you enjoy a more fulfilling retirement lifestyle.

Things You'll Need

• Retirement plan statement
• Social Security statement

Instructions

1. Create a monthly budget. This will help you determine how much you can expect to spend in retirement. Look at your budget closely, then remove items that are job-related, such as business clothing and the cost of commuting. Add any new expenses that retirement will bring, such as increased costs for travel and leisure activities.

2. Review the sources of income you can expect to receive in retirement, including payments from pension plans and Social Security. You can use the benefits estimator at the Social Security Administration's website (See Resources) to estimate your monthly check. In addition, the Social Security Administration sends out a personalized statement every year detailing how much you will receive when you reach your full retirement age.

3. Subtract your guaranteed sources of income from the amount you expect to need when you retire. This is the amount you will need to draw from your nest egg each month to meet your basic needs.

4. Review your most recent retirement plan statements, including your 401K plans and IRA account. Figure out the percentage you will have to withdraw from your nest egg to meet your monthly income needs. If the amount you need to withdraw is more than 4 percent, your risk of running out of money in retirement goes up substantially. If you face a shortfall, you might want to consider staying on the job longer, or at least taking a part-time job once you retire.

5. Contact the administrator or custodian of your retirement accounts and set up a withdrawal schedule. You can leave the money in your retirement plan with the current administrator, or you can roll all the funds into a self-directed IRA with a brokerage firm or mutual fund company. If you do wish to transfer the funds, contact the new administrator or custodian and get an account transfer form. This will allow the money to be transferred from custodian to custodian, with no tax consequences.

6. Set up a schedule that transfers money directly from your retirement funds to your bank account. Contact the custodian holding your retirement funds and complete the paperwork needed to establish those transfers.

References

• Money Magazine: Retirement - the 4% Solution

Resources

• Social Security Administration: Benefits Estimator