The majority of financial goal planning is focused around retirement. We all want to ensure we can live comfortably in our ‘golden years’; that we will have enough money to cover daily expenses, monthly bills, and other unexpected costs. Today, we’re looking at our financial planning from a different perspective. Instead of focusing on steps to take towards living comfortably during retirement, today’s post examines the next steps to take once you’re in retirement and are already drawing money from your 401(k) or IRA.
When Can You Start Drawing Money From Your Retirement Account?
Let’s start by evaluating when you can start drawing money from your 401(k) or IRA account. There are three key age benchmarks to remember as you approach retirement. They are age 55, 59 ½ , and age 70 ½ . Each of these ages unlocks certain opportunities to withdraw money from your retirement plan without paying early withdrawal fees.
At age 55, some 401(k) plans allow you to withdraw from the account under the 55 liquidity provision. There are stipulations; funds must be left in the 401(k) plan and cannot be converted to other retirement savings accounts like IRAs. You also must retire from your company the year you turn 55 or later, no sooner. For specific workers like Police, Firefighters, EMTs, and some Military, this provision allows funds to be accessed at age 50.
Age 59 ½ is the golden age for retirement. This is the age when most everyone is able to start drawing from their retirement accounts penalty-free. It’s an important age to remember. If you’re retired by this time you can pull funds from the account. If you’re still working, it’s advised to check with your current 401(k) plan administer to see if you can pull funds while being currently employed. This is called, “in-service distribution”, some plans allow for it and some do not.
At age 70 ½ , all retirement accounts (except a ROTH) require an annual minimum distribution withdrawal. If for some reason you do not wish to withdraw at this age, you can check with your plan administrator to see if there are ways to avoid this requirement.
Withdrawing Your Retirement Funds Wisely
It’s tempting to loosen the “financial belt” so to speak once you hit retirement. After working and saving for so long it’s understandable. However, you want to ensure that your money lasts as long as you’re alive. You don’t want to be in a situation where you’re elderly and forced to go back to work to pay for necessary expenses.
Working with the TrueNorth Wealth team of financial advisors can give you the peace of mind to know that you’ll live comfortably throughout your lifetime. Many clients also want to provide inheritance for their family members. Our financial advisors work with your specific situation to ensure your goals during retirement are met. When working together, we will discuss things like:
- Realistic income needs each year of retirement
- Income sources available including retirement accounts, social security, pensions, inheritances, and real estate properties, and which assets to tap into first
- Creating cash flows and budgetary plans to cover expenses
- Analyzation of inflation, returns of investments, and other future indicators
- Long-term healthcare costs
- How much financial “cushion” to set aside for major emergencies or catastrophes
These are among the considerations when you start withdrawing retirement funds from your accounts. It’s especially important to note changing health and related healthcare expenses and the price of inflation. As you get older your healthcare costs may increase faster than the rate of inflation. Or the rate of inflation might not keep up with the specific lifestyle for retirement that you had in mind. It’s important to consider all of these factors when making decisions when and how to use retirement funds.