How to Withdraw Retirement Funds

Here's an interesting piece from USA Today that gives advice on how to withdraw retirement funds. Their suggestion:

Diversify your investments among stocks, bonds and money market securities, or cash. That way, if your stocks tumble, gains in bonds or cash could soften the blow.

The next tip: Withdraw money from your investments in a sensible order. Guyton recommends setting a basic asset allocation, and rebalancing it every year. Suppose, for example, you decided to keep 65% in stocks, 25% in bonds and 10% in cash. You should take withdrawals from your portfolio in this order:

1. The portion of your stock holdings that exceed your target allocation for stocks. For example, if you're 67% in stocks, clip 2 percentage points' worth from your stock funds. Most of the time, if a portfolio position is overweighted, it's because you've made gains. There's nothing wrong with selling higher than you bought.

2. The portion of your bond funds that exceed your allocation target.

3. Cash.

4. Remaining bond funds.

5. Remaining stock funds.

When possible, don't take withdrawals from stock funds if they absorbed a loss the previous year.

Two other rules can help make your portfolio last: First, cap your inflation adjustments at 6%. Even if inflation soared 10%, you would limit your increase to 6%. Also, don't give yourself an increase if your overall portfolio shows a loss for the previous year.

I am a long, long, long way from needing this advice and it's likely that the best method of withdrawal will change by the time I do. That said, I thought some of you who are closer to retirement might be interested in it. Also, the article itself has several additional insights, so if you want more information, click on the link above and read the whole thing.

For more on retirement, see these links:

• 10 Retirement Pitfalls

• How to Maximize Your Retirement Savings

• Don't Plan on Working Longer to Make Up for Small Retirement Savings

Comments

[Dave]

No mention of how real estate of commodities fit in, but that's the mainstream media for you.

Bond information is not easy to find. If you get stuck with Series EE (3.6% current), you could earn more in a government bond money market fund!

[Art Dinkin]

The real issue is not WHERE to draw the funds, but HOW MUCH to draw. T Rowe Price has published some interesting research about undertstanding the retirement withdrawal problem of how much to draw.

[Going No Where]

I would like to withdraw all of my retirement funds from the company of employment. My situation is this: I am employed by a county/government agency, no 401K just retirement plan. I plan to leave this job in the pacific NW and move east. What do you suggest in terms of investing my retirement withdrawal check amount?
I may have a job ready and waiting or may not.....

Thanks!!!!
On-The Fence

[FMF]

I'll post your question in a couple weeks -- stay tuned.