Systematic Withdrawal Strategies

Should you arrange automatic distributions from your retirement or investment accounts?

Some retirees wish they could simplify money management. Estimating investment income, annual retirement plan distributions, and quarterly taxes can be a chore.

This is why some retirees choose to make systematic withdrawals. Just as they contributed a set amount per month to their retirement accounts while working, they now withdraw a set amount from their accounts each month, quarter, or year.

The simplicity of this may appeal to you. The potential drawback is that a systematic withdrawal strategy can risk oversimplifying the complex matter of retirement income distribution.

How do these strategies work? A specific monthly, quarterly, or annual withdrawal amount is established, and then assets are sold or liquidated to generate the cash. As people commonly have multiple retirement or investment accounts, a comprehensive systematic withdrawal strategy arranges proportionate withdrawals from most or all of them. Sometimes, federal or state taxes can be withheld from the withdrawals.1

Remember, investments will fluctuate in value and when sold, they may be worth more or less that their original cost.  This article is not intended as tax or legal advice, and may not be used for the purpose of avoiding any state or federal tax penalties. Please consult an investment advisor or legal or tax experience regarding your situation.

These withdrawals often take time to arrange. Most investment custodians will permit them, but paperwork is necessary. In some cases, they are only allowed when the account balance is above a certain level.2

In the big picture, tax issues must also be considered. Withdrawals from retirement accounts may be characterized as taxable income.2

There are times when systematic withdrawal strategies may not work well. For example, say some of your investments have lost value, but your withdrawal amount stays the same. This means that a greater percentage of your investments may have to be sold to generate that income you have set up.

So during this period, you are selling a greater percentage of your invested assets  – assets that have the potential to grow in the future.1

Also, note that required minimum distributions (RMDs) may apply to certain accounts after you reach age 70½. That implies an end to systematic withdrawals, as your RMDs will almost certainly vary per year.2

There are pros and cons to adopting a systematic withdrawal strategy. An investment advisor may help you make an informed decision.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

 

Citations.
1 – thebalance.com/what-is-a-systematic-withdrawal-plan-2388788 [6/29/18]
2 – investopedia.com/terms/s/systematicwithdrawalplan.asp [4/19/19]

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by MarketingLibrary, Inc., for Mark Lund, Mark is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Advisor, Financial Planner and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment and retirement planning for individuals and 401k consulting for small businesses. Cities served include but not limited to are: Salt Lake County, Park City, Salt Lake City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City, and Utah County in Utah.

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About the Author ()

Mark K. Lund is the author of The Effective Investor, a #1 Best Seller, and founder of Stonecreek Wealth Advisors, Inc. an independent, fee-only, Registered Investment Advisory firm. He has provided articles for or been quoted in: The Wall Street Journal, The Salt Lake Tribune, The Enterprise Newspaper, The Utah Business Connect Magazine, US News & World Report, and Newsmax.com, just to name a few.  Mark publishes two newsletters called, “The Mark Lund Growth Report” and “Mark Lund on Money.”  Mark provides CPE (continuing professional education) courses for CPAs.  You may also have seen him on KUTV Channel 2, or as a guest speaker at a local association or business. Mark provides investment and retirement planning services for individuals and 401(k) consulting for small businesses. In his book, The Effective Investor, Mark exposes the false narrative magazines, media, big Wall Street firms, and most advisors want you to believe. The good news is that Mark will show you that you don’t need their speculative ways of investing in order to be a successful investor. Get a free copy when you schedule your initial consultation.

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