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I Need Money!

“I need money!” Well, not me specifically… I’m talking about when my clients call me and let me know that they would like to withdraw some of their funds. You didn’t work all those years and diligently put money away to die rich. You did it so that you could live comfortably and have money there when you needed it. Well, this is one area that might seem simple, but I’ve actually seen lots of mistakes. How you take your money out can have a big affect on your finances. There is actually an intelligent order in which you should tap into your accounts. If you do it correctly, you can both extend how long your money lasts and increase the amount you can pull out safely without changing your investments.

Be Smart About Taking Withdrawals During Retirement
The list below describes the best way to take your money out.

Taxable Income

Your pension, your income if you are still working, your dividends and interest from your “taxable” accounts, your Social Security (if eligible), any rental income you have coming in, etc.

Principal from your Taxable investments
These may include stocks, bonds, mutual funds outside of your retirement accounts… there is even a smart way to take these monies out as well:

Traditional IRA and 401(k) (If you are in the 10% to 15% tax bracket)
If your income is low enough to keep you in the lower tax brackets, withdraw money from here next… until your withdrawals would push you into a higher tax bracket.

Annuities (and traditional IRA and 401(k) if in a higher tax bracket)
Withdrawals from these accounts should be delayed as long as possible to take full advantage of their tax-deferred benefits. However, when you reach a point in which you need to begin withdrawing these monies, consider using this order:

Home Equity
There are many advantages and disadvantages to tapping into your home equity. If you are still in need of money after tapping all of the other resources, then here are some things to think about. Home equity lines of credit will usually give you the lowest interest rate so you should explore these first. You can also explore reverse mortgages but make sure you read the small print. Reverse mortgages tend not to offer very attractive interest rates… but it is always an option. Lastly, explore home equity loans but these should be as a last resort.

Roth IRAs
Your investments in your Roth shouldn’t be tapped until you’ve exhausted all other options. These assets are 100% tax-free to you and your heirs so leaving them until last makes absolute sense.


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Boomers Resource Guide is a special supplement to the Senior Citizen's Guide