10 Things You Should Ask Yourself About Retirement, Part 3

Here's part three of a USA Today article on 10 things you should ask yourself about retirement:

How should I manage my retirement savings?

Ideally, you could simply live off the interest of your retirement savings. But you'll need a ton of money these days: The bellwether 10-year Treasury note yields less than 4%. To get $50,000 a year at 4%, you'd need to start with $1.25 million.

How can I minimize taxes in retirement?

No matter how much you save and how carefully you budget, two things will eat away at your retirement savings: inflation and taxes. There's not much you can do about inflation. But you can minimize the tax bite.

Financial planners recommend taking withdrawals in this order:

• Taxable accounts.
• Your traditional individual retirement accounts, 401(k) plans and other employer-sponsored retirement plans.
• Your Roth IRA.

My thoughts:

1. If you can retire on simply the interest of your savings, you have got it made. You're sitting pretty versus the vast majority of retirees in the U.S.

2. Good advice on the tax issues. It's the first time I've seen it laid out like this, and it's very helpful.

Click here to read part 4 of this series.

Comments

[robert the red]

Managing withdrawals in retirement is going to become a higher-profile item in the next few years. Starting with taxable accts makes some sense, since the bulk of the money in these may well already have been taxed -- so that the income tax will be low. If you can keep your tax rate in the low brackets, then you may also want to withdraw some from the pre-tax accts, pay the low tax rate on that, and then roll that money into a Roth IRA for later use. If you exhaust the post-tax accts first, then go all pre-tax, you may end up in a higher tax bracket and pay more. Obviously, calculating the "best" thing to do will depend on each person's financial situation (pensions, SS, amount in post- and pre-tax savings, part-time earnings). So no general rule could be given, just a set of principles. Which of course makes the situation too complex for many people, so I suppose a parasitic industry will grow up around this, too.