When to Withdraw 401(k) and IRA Savings for Retirement


When to Withdraw 401(k) and IRA Savings for Retirement

If you watch the news, it seems like the biggest issue facing retirees and those soon to be retired is inadequate savings.


But that’s not actually the case.


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According to research by the Blackrock Retirement Institute, most current retirees still have 80% of their retirement nest egg available two decades into retirement. That figure is constant across all income levels and is expected to continue until 2030.

The challenge for Baby Boomers isn’t accumulating savings for retirement, it’s decumulating in the most efficient way. In other words, for most people in their 50s, the most pressing concern is when to withdraw 401(k) and IRA savings in retirement.


On the surface of it, that seems like a good problem to have, but mistakes can be costly. If you don’t withdraw your 401(k) and IRA savings at the right time, you could owe penalties and unnecessary taxes. Even worse, poorly timed withdrawals could shorten the life of your nest egg or reduce the income generated by your investments, impacting your lifestyle later in retirement.

Here’s what you need to know about when to withdraw 401(k) and IRA savings for retirement and develop an effective decumulation strategy.


401(k) and IRA withdrawal basics


Most people intuitively understand that retirement savings should be left alone until you actually retire. For those who are tempted to tap those funds before retirement, the government established rules and a 10% penalty for early withdrawals.


Avoiding early withdrawal penalties


You can avoid the 10% early withdrawal penalty by waiting until age 59-½ to take IRA and 401(k) withdrawals. If you want to retire early—before 59-1/2—the “rule of 55” applies.


If you retire,