How To Withdraw From Your 401K

I'm 62 and wondering how to determine the best strategy for taking money from my 401(k). Currently my pension is about $50,000 and $24,000 in Social Security. I have about $1 million to take out.

There are many ways to produce income in retirement, but this broad-brush strategy works well for many: Match your sources of income to your expenses. Use your fixed sources of income (your pension and Social Security) to pay for essential expenses and use your variable sources of income (your retirement account) to pay for discretionary expenses.
Now, if your fixed sources of income don't cover your essential expenses, consider ways to create a steady and reliable stream of income by investing in Treasury Inflation Protected Securities (TIPS), income annuities, and the like in your retirement account.
The best strategy for you to withdraw money from your retirement account depends on whether you're collecting Social Security or not.
If you're taking your pension and Social Security, then estimate how much it costs to fund your desired lifestyle, inclusive of essential and discretionary expenses. If that equals how much you're getting from your pension and Social Security, there's no need — other than making sure your money is in the right investments — to touch your 401(k).
If, however, your lifestyle costs more than what you're getting from your pension and Social Security, then you'll have to withdraw money from your 401(k). You'll be fine if you can withdraw less than 4% per year (or $40,000) from your 401(k) to make ends meet.
But you've got problems if you need to withdraw more than 4% per year. You're living beyond your means, and you'll have to consider ways to 1) increase your income (consider going back to work) and/or 2) trim your nice-to-have-but-perhaps-not-so-necessary discretionary expenses and, if need be, your essential expenses. Downsizing, for instance, is one way to cut housing expenses. The reason why you don't want to take out more than 4% is this: It increases the odds that you'll run out of money later in life.
If you're not taking Social Security, consider a "bridge" strategy. Delay taking Social Security until age 70 and take the money that you would have received from Uncle Sam from your retirement account for living expenses. This does two things: 1) it helps maximize your monthly Social Security benefit, and 2) it reduces what's called your "required minimum distribution" (RMD), the amount you're required to take out of your retirement account after turning age 70½.

Original article from USA Today can be see here.


What Should Boomers Do With Stocks Now That The Bull Market Is Five Years Old?

The US bull market is now 5 years old.  That is a long time and most boomers have some money in the stock market and that has been great lately.  But what to do now?

The current bull market may not be the oldest in history but it is getting close.  You never know what will derail it, sometimes it is valuation, sometimes it is geopolitical and sometimes it takes just one small event to trigger selling.  I know this, with more hedge funds holding more assets, when real selling occurs, it will be swift.  You need to decide now what you might do.

This bull market is a boomer itself!!!  If you were fortunate enough to have made money over the last five years or more, read on.

My favorite of all wall street sayings is "professionals sell on the way up and amateurs wait for trouble and sell on the way down".  The psychology behind this is true.  I don't know when the bull market will end but check out the chart below and remember the terrible bear markets that took place after each!

If you utilize a financial guy, make sure you compare your brokerage account to history and if you didn't annualize over 19% a year over the last five years, then you are paying for nothing.

Don't expect your financial guy to sell anything now either for two reasons;
  • financial advisors only get paid for assets on the books, not cash
  • it's easier to be one of the crowd and ask for forgiveness when your account withers rather than risk being right
  • they are probably too busy 'selling' new people
bull markets data