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D. Paterson Cope Explains How to Transition into Retirement with Smart Tips for Successful Withdrawals

So much time and effort is spent saving for retirement. But, financial expert D. Paterson Cope says it’s equally critical to plan the transition from saving to spending.

As you approach retirement age, you need to develop a strategy for withdrawing your money that not only gives you the income you need but also preserves the assets you worked so hard to build.

Below are some timely tips that will help you ease the transition into your post-work lifestyle.

Start with 4%

A tried-and-true retirement withdraw principle is called the 4% Rule, and it works to help you lower your chance of depleting your savings. You start by withdrawing 4% of the value of your portfolio for your first retirement year.

Every year, you increase the amount of your withdraw by the inflation rate. If you’re retirement nest egg is $700,000, you’d withdraw $28,000 in the first year. If inflation stood at 4%, then your withdraw for year two would be 4% more than it was in year one, or $29,120.

You would continue on in this way every year, basing how much you withdraw on inflation.

Stage Your Withdrawals

Another common strategy for people who have multiple retirement accounts is to stage the withdrawals, starting with one account and then moving to the next one only when the first one is depleted.

The goal here is to begin with any accounts that are taxable, such as traditional IRAs and 401(k)s, move to traditional assets such as bank accounts and end with non-taxable such as Roth IRAs.

This helps to extend your retirement savings, but could result in a spike in taxable income for the period when you’re withdrawing from the traditional assets.

Withdrawal Simultaneously

The opposite approach to staging withdrawals is to take a proportionate amount from each of your accounts every year. The biggest potential benefit to doing this is that it can significantly reduce how much you owe in taxes over the life of your retirement.

When you pay less in taxes to the government, you will hang onto more of your money, which means you can extend your retirement on the assets you’ve already saved. This is an approach that many people take if they don’t have a substantial amount of capital gains.

Withdraw in Buckets

Paterson Cope says another solid withdrawal strategy is called the bucket strategy. For this, create at least three different “buckets” based on your spending needs, and withdraw from different accounts for each of these buckets.

The first bucket will represent money you need to spend in the short-term, say over the next six to 12 months. This money will be held in liquid accounts such as savings accounts that have a high yield.

The second bucket is money you might need to spend between seven months and three years. You can invest this money in other accounts with higher yields, such as CDs and bonds with short terms.

The final bucket will include assets you won’t need to tap into for at least two years. This provides you with the opportunity to invest in assets that could have higher returns, including stocks.

This strategy helps to spread out your income, providing you with the access you need, while also potentially reducing your risk.

About D. Paterson Cope

Paterson Cope, CFP® is the founder and CEO of Cope Private Wealth, a financial planning and wealth management firm specializing in assisting retirees and people who are about to retire. D. Paterson Cope has been providing financial advice for more than 30 years. He first earned the designation of Certified Financial Planner (CFP) in 1997. When he isn’t working, he enjoys spending time with his wife, Jennifer Miree Cope, and the rest of his family in Mountain Brook.

Sophia Masters
Sophia Masters
Sophia Masters is our politics writer, and she’s always across the latest breaking stories when it comes to often crazy world of politics. She’s skilled at filtering out the ‘boring bits’ of politics and brings her readers all the juicy detail and analysis.

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