You have worked hard throughout your life to accumulate a nest egg for retirement; Employed the best strategies for saving money, investing, and minimizing taxes. But, now that you are retired, what is your strategy to withdrawal from your savings, to keep your taxes to a minimum, and make your nest egg last? Yes, the hard work doesn’t end. You now need to develop the “decumulation” strategy that you will follow so you can enjoy all that you planned and hoped for during retirement.
Just like the accumulation phase, you need to set goals, minimize taxes, and monitor your investments. The main difference however is the source of funds to maintain your lifestyle. These now are obtained from the savings that you have accumulated. And the general rule of thumb is to first make withdrawals from taxable accounts, then tax-deferred accounts (like IRAs and 401Ks), and then the tax-free accounts (Roth IRAs)*. But it behooves you to explore a blend of withdrawals from these type of accounts in order to fulfill your objectives, while minimizing your expenses, such as taxes, commissions, and possibly penalties. The concept(s) is referred to as sequencing or withdrawal strategies.
Sequencing is actually following the above mentioned “sequence” for withdrawing funds to meet your needs and lifestyle in retirement. Research by William Reichenstein of Baylor University has demonstrated that by applying proper sequencing techniques that a retiree may extend his or her nest egg by 2 to 5 years*. However, more questions arise as to when do you file for social security benefits? Or what should you do to cover unexpected bills such as medical emergencies, among others. The complexity of tax laws can make such decisions difficult. Additionally, the fact that once you exceed a certain limit (income from taxable accounts), your social security benefits can then be taxed. This is why you may want a withdrawal plan or withdrawal strategy in place.
Fortunately there are some tools available for developing such plans. Retiree Inc. (www.retireeincome.com ) is one such place. For a fee of $500 for assets less than $1 million or $1000 for plans over a $1 million, they will assist you in developing a detailed plan, customized for your situation. Or another tool at ESPlanner (www.esplanner.com) can help you compare withdrawal strategies, and the tax implication of each, for a cost of $149. A third service can be found at www.schawb.com and search for “write your own retirement paycheck”.
Retirement is the time for you to enjoy the fruits of a life-time of work. Don’t let improper planning, or mistakes rob you of your hard earned money. Keep in mind if you fail to plan, then your plan may fail. And as always, consult a financial planner to help you on the journey you truly deserve.

* This article is just a summary of an article written by Glenn Ruffenach in the January 2011 issue of SmartMoney magazine,(p 36-38). All information and quotes are obtained from the article.
We thank all the people at SmartMoney for the excellent information they provide. If you wish for more information, Mr. Glenn Ruffenach can be reached at newretirement@smartmoney.com