(Click here to learn more about the 365 Retirement Plan, discussed in the video)
You’ve run the numbers, double checked your projections and confirmed: You can retire.
What an incredible moment!
But, instead of feeling relief, you feel—uneasy.
The amount you’ve accumulated SHOULD BE ENOUGH, yet the thought of drawing from it—especially when markets fluctuate—makes you nervous.
Maybe you lie in bed thinking about the “what ifs”—what if a downturn forces you to withdraw at the wrong time? What if an unexpected expense throws off your careful planning? What if…?
(By the way, if you think your retirement savings isn’t on track, read this: What To Do If You Think Your Retirement Isn’t On Track)
THE REAL CHALLENGE TO CREATING LASTING RETIREMENT SAVINGS
The real challenge in maintaining financial security throughout retirement is making sure your withdrawals are structured in a way that MINIMIZES RISK AND TAXES—while still allowing your money to grow.
This is where distribution optimization strategies come in, i.e., turning your savings into a structured, RELIABLE RETIREMENT PAYCHECK.
How you withdraw—matters.
Distribution optimization strategies aren’t just about withdrawing money—they’re about withdrawing it the right way. By carefully choosing how, when and from which accounts you take withdrawals, you can minimize taxes, reduce market risk and help ensure your savings last throughout retirement.
Before we dive into three key withdrawal strategies, let’s start with an essential question:
Do you know your PIN?
Your Portfolio Income Needs (PIN) is the amount you’ll need to withdraw from your savings to maintain your lifestyle in retirement. Knowing this number gives you a clear starting point—it helps you determine how much income you need, so you can build a withdrawal strategy that supports it.
Our PIN calculator can help you establish this critical baseline. Once you know your PIN, you can focus on optimizing your withdrawals to make your money last.
3 KEY RETIREMENT DISTRIBUTION OPTIMIZATION STRATEGIES
Distribution optimization is a key step in our 365 Retirement Plan Process.
It’s also part of what we call our Stronger Framework—designed for those who likely have enough to retire but need to safeguard their plan against unexpected financial events. That’s why strengthening your strategy is critical—because a strong plan leads to a stronger retirement.
Let’s get to the withdrawal strategies…
#1—The 4% Rule
A simple rule-of-thumb where you withdraw 4% of your retirement savings in the first year, then adjust for inflation annually.
The 4% rule suggests that retirees can withdraw 4% of their retirement savings in the first year and then adjust that amount each year for inflation to maintain purchasing power. The goal is to provide a steady income stream while minimizing the risk of running out of money over a 30-year retirement.
Pros: Easy to follow, provides steady income.
Cons: Doesn’t account for market fluctuations or individual spending changes.
4% Withdrawal Rule Example:
The following example assumes you retire with $3,000,000 in savings. Your first year withdrawal is 4% of the starting balance, annual inflation adjustment is 2.5% and (for simplicity) there’s no growth or loss.
Year | Withdrawal | Remaining Balance |
Year 1 | 4% of $3,000,000 = $120,000 | $2,880,000 |
Year 2 | $120,000 × 1.025 = $123,000 | $2,757,000 |
Year 3 | $123,000 × 1.025 = $126,075 | $2,630,925 |
Year 4 | $126,075 × 1.025 = $129,227 | $2,501,698 |
Year 5 | $129,227 × 1.025 = $132,458 | $2,369,241 |
#2—The Bucket Strategy
The Bucket Strategy segments retirement savings into different “buckets” based on time horizon and risk level.
Typically, you’d allocate funds into three buckets: short-term, medium-term and long-term, to balance liquidity, stability and growth throughout retirement.
For Example:
#1—Short-Term Bucket (0–3 years): Holds cash or cash equivalents (e.g., money market funds) for immediate expenses.
#2—Medium-Term Bucket (3–10 years): Invested in bonds and conservative assets for moderate growth and stability.
#3—Long-Term Bucket (10+ years): Invested in equities for long-term growth to replenish the other buckets over time.
Pros: Offers a clear plan to handle market ups and downs while keeping cash available for short-term needs. It also helps prevent selling long-term investments during market downturns.
Cons: Needs regular upkeep and rebalancing to keep the buckets properly funded. Also, holding too much in cash or conservative investments could slow long-term growth.
#3—Tax-Efficient Withdrawal Strategy
A tax-efficient withdrawal strategy focuses on minimizing taxes paid on your retirement income. This approach can DRAMATICALLY INCREASE THE FUNDS available for your retirement lifestyle.
To achieve this, the strategy strategically coordinates withdrawals from various retirement accounts, including traditional IRAs, Roth IRAs and taxable accounts. This optimization of your tax liabilities directly translates to a reduced tax burden, increased retirement income and a longer lifespan for your savings.
The tax-efficient strategy takes into account:
- Current & Future Tax Brackets
- Required Minimum Distributions (RMDs)
- Tax Impact Across Investments
- Potential Tax Law Changes
- Charitable Giving & Estate Planning
- Survivor Benefits & Tax Bracket Modifications
Pros: Helps maximize after-tax retirement income, reduce unnecessary tax burdens and extend the longevity of savings.
Cons: It requires careful planning and ongoing adjustments. Also, withdrawing from the wrong account at the wrong time can lead to higher taxes, reduced savings and increased costs, e.g., higher taxes on Social Security benefits and increased Medicare premiums.
There are many other withdrawal strategies to consider, including:
- Market-Based Adjustments: Modifying withdrawals during market downturns to help preserve your portfolio, including prioritizing essential expenses while scaling back discretionary ones.
- Annuities or Guaranteed Income Strategies: Using products that provide stable income, reducing reliance on investments.
- Systematic Withdrawal Plan: Withdraw only the income generated by your investments (e.g., dividends and interest), with an overarching goal of preserving the principal.
Final Thoughts
Creating a smart withdrawal strategy is JUST AS IMPORTANT as building your retirement savings.
By carefully structuring withdrawals, you can help minimize risk, reduce taxes and extend the longevity of your wealth.
The right approach depends on your unique financial situation, but one thing is certain: optimizing withdrawals is key to making your money last.
Because withdrawal strategies can be complex and require ongoing adjustments, working with a financial advisor can be invaluable.
If you’re feeling uneasy about your withdrawal strategy, then check out our 365 Retirement Plan. It’s easy and helps reduce stress.
[Popular Video] Even with a solid nest egg, making it last can be a concern. This video covers key retirement considerations and provides an example of strategic portfolio changes that could increase returns. Check it out: 65 With $1.5 Million in Savings, Why Can’t We Retire?
