- Hey, everyone. Bill Lethemon here for moneyevolution.com. In today's video, I'm gonna be talking about three big retirement
plan withdrawal mistakes. So, if you're planning for retirement, you're gonna be looking at
how you can make a transition from what we call the
retirement accumulation phase, when you've been saving and
investing money for your retirement, into the
retirement withdrawal phase. Now you're gonna take some
of that money that you saved, and you're gonna start distributing
that money back to you, start taking some withdrawals. So there's actually three
big mistakes that we see all the time here, and
hopefully this video will help you avoid
some of these mistakes. So, mistake number one is
probably the most common one that we see all the time,
and it's waiting too long to begin taking withdrawals. And this mistake can actually compound into a couple of other little mistakes that actually can cost you a lot of money. So one of the things, for
example, that we see all the time is people will oftentimes
begin taking their Social Security benefits as
early as they can at age 62, and not only does this
prevent them from getting a bigger Social Security check
and kind of maximizing that, but it also oftentimes
means that they're delaying taking their retirement plan withdrawals, and what that does is it
compounds itself down the road, because as many of you probably know, at 70 1/2, the IRS is gonna mandate that you're gonna start
taking some withdrawals from those retirement accounts. It's called the Required
Minimum Distribution Rules. And what that might do
is it might push you up into a higher tax bracket at that time, and on top of that, as I think
most of you probably know, not only would you pay more taxes there, but it can also affect your
Medicare premiums as well, because your Medicare
premiums are also tied to the level of income that you make. So the more money you make,
the more you pay for Medicare. One of the things that
we look for, though, as a way to kind of
get around this mistake is we wanna really map out
some of those cash flows. And one of the things that we identified is that sometimes, maybe
taking some retirement plan withdrawals early on in
retirement can take advantage of what we call low tax years. So if you're waiting to take
Social Security, for example, or maybe your pension
doesn't kick in right away, you might have a couple
years, maybe several years early on in your retirement where you're in a very low tax bracket. So by taking some of those
retirement plan withdrawals early, can take advantage
of those low tax years and also, at the same time, help you get maybe a bigger Social
Security check down the road, and also take some pressure
off of some of those required minimum distributions. Maybe some of those won't be so high and pushing you up into
those higher tax brackets. We can also look at maybe
doing some Roth conversions too as a way to, again, take advantage of some of those low tax years. Number two is gonna be
taking your distributions at too high of a rate. So what I mean by this is there are some schools of thought out there. Probably the most prominent
of this is something called the four percent rule, and
this was a rule that was, that came up by a financial
planner, William Bengen back in the 90s, and he did a lot of math, studied some probability and statistics, and said that if you limit your
retirement plan withdrawals to no more than four percent
of your entire portfolio each year, you should
have a pretty good chance of probability that that
money's gonna last you throughout the rest of your lifetime. So, if we think about four percent as kind of our, our withdrawal rate that we should be targeting, think about that if we're
at five or six percent, it may not seem like a big difference, but looking at the math and the numbers, your probability of running out of money goes up pretty high once you
start getting up to five, and especially once you get
up to six percent or more. So making sure that you're not taking out too high of a distribution
rate, and again, one of the things to figure that out is to have that long-term
cash flow projection so you know what those expenses are, know where your withdrawal rate comes in. And then number three is not understanding your cash flow needs. So, one of the things
that we wanna understand is we wanna understand
some of the variabilities that you might be
experiencing with your income and your expenses in retirement, and again, we talked about
the sequencing of returns. That's what William Bengen did when he did his research
on the four percent rule. But even if we're earning let's say a six or seven or eight percent
average return over time, because of the sequencing of returns, and we could end up with
a bad string of years where we have multiple years
where we're not earning that average or we have down markets, what is the impact of that
on our long-term ability to sustain our retirement withdrawals? One of the ways we can get around that is we use a bucket
strategy for our clients. What that means is we like
to keep one to two years worth of liquid cash
reserves in an account that's very safe, very accessible, so that as you need money to
supplement your retirement, we're not having to take it
out of some of the riskier investments that might be in
the stock or the bond market. We also wanna have kind
of an intermediary bucket, where we have another three to
five years worth of cash flow needs and stuff that maybe
is paying some dividends or paying some interest
to kind of replenish that first bucket, and then
finally the third bucket is a long-term bucket
that's meant for your long-term growth, to keep
up with inflation, and have, you know, some wealth creation there. So understanding those
cash flow needs is really one of the most critical
pieces to mapping all that out and knowing how much money goes into each one of those three buckets. So, there you have it. I hope this has been helpful. Hope you now know three
of the big mistakes. Hopefully you'll avoid those mistakes. If you wanna learn a little bit more about some of the financial planning that we do here, we have what we call a Wealth Vision
comprehensive financial plan. I'll put a link right
below the notes here, right below the video,
and if you like, you can set up a free no-obligation
introductory call with me. We can learn a little
bit about your situation and find out of Wealth
Vision is right for you. So, until then, I will
see you in the next video. Have a great day.
