Our topic on this episode of the Ready for Retirement podcast is about how to coordinate portfolio withdrawals with Social Security (and other income sources).
Questions answered: How can I best coordinate my portfolio withdrawals with when I intend on collecting Social Security? If I’m currently collecting Social Security, how much should I be withdrawing from my portfolio? How can I plan when to best withdraw funds from my portfolio based on my individual Social Security income options? How should my investments be allocated during retirement?
Are you ready to start focusing on the things that truly matter when it comes to your financial future?
Key Points
- What income sources will I have in retirement? Will they all be there during retirement or will they stagger in?
- What is a sustainable withdrawal rate in retirement?
- For this example, we’ll use a 4% withdrawal rate and assume you collect Social Security at age 62 (the listener who submitted the question is age 60).
- We’ll also assume Social Security income to be $20,000/year (without taxes) annually, starting at age 62.
- To live on $100,000/year, assuming $20,000 of Social Security, you will need a portfolio that is generating $80,000/year.
- To determine how much of a portfolio you need to generate $80,000/year, you divide $80,000/year by 4%, which is $2,000,000.
- For more information on withdrawal rates, check out Episode 27 – What is a Sustainable Spending Amount In Retirement?
- Where can I generate income from the time I retire until I can collect Social Security?
- The listener has an additional $500,000 ($2,500,000 in total) and investing conservatively or in cash will allow you to have two years of living expenses set aside (with additional funds leftover).
- By age 62, assuming no portfolio growth, the listener would still have $2,300,000 and Social Security would begin to kick in (assuming age 62).
- Should I wait to collect Social Security?
- If the listener were to wait until age 66/67, Social Security income would be higher, and less would be required in your portfolio to live on the $100,000/year.
- However, there would be additional funds needed in the early years (age 60-66) to cover the years between retirement and collecting Social Security.
- How does the withdrawal rule impact taxes?
- It depends on the account type.
- If you were to have your retirement account in a 401(k), the funds would be taxable. If you were to have your retirement funds primarily in a Roth IRA, the funds would be tax-free when you withdraw them.
- For more information, check out: Episode 39 – Where Should I Pull Funds From First In Retirement?
- Example: CA Resident
- CA does not tax Social Security.
- No more than 85% of your Social Security benefit will be included in your taxable income.
- Tax Planning
- Tax planning is used to identify the best place to manage your tax bracket depending on the various accounts you own.
- Important Considerations Surrounding Retirement
- Do your expenses cover healthcare costs?
- Which of your expenses will remain the same as today and which will go away?
- Will you be working part-time?
- This puts less pressure on your portfolio which allows you to maximize growth throughout retirement.
- When does it make most sense to collect Social Security?
- Depends on your overall financial strategy – income needs, when you hope to retire, life expectancy, etc.
- Understanding how your expenses impact your withdrawal strategy
- What is a sustainable withdrawal rate in retirement?
Timestamps
1:00 – Listener Question
3:43 – Social Security Income
5:45 – Conservatively Investing In Early Retirement
8:00 – Waiting To Collect Social Security
9:30 – Align Your Financial Goals With Your Portfolio
11:14 – How to Remain in Low Tax Brackets
11:40 – CA Resident Example
16:11 – Income Sources In Retirement
17:00 – The Work We Do
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