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Retiring This Year? Here Are 4 Retirement Withdrawal Strategies to Consider

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Make sure you're tapping your retirement funds at the right time — withdrawals before age 59½ can result in IRS penalties.

3. Fixed Dollar Withdrawals

With fixed dollar withdrawals, rather than tapping a percentage of your retirement account balances each year, you withdraw a fixed dollar amount every month or year,4 and reassess the dollar amount every few years.

For example, you might decide to withdraw $40,000 per year for the first five years because that's how much you need to cover your everyday expenses. When that timeframe is up, you might increase that amount if inflation makes it tough to live on $40,000 per year — or if the market is doing well and you'd like to increase your standard of living. You could also opt to withdraw less if you decide you don't need the entire $40,000.

The benefit of taking fixed dollar withdrawals is that you have a predictable income, and you can base your withdrawals on the amount you need to live comfortably during retirement. Of course, if you select a fixed withdrawal amount that is too high, you run the risk of running out of money. It's best to consult with a financial planner to make sure the amount you choose to withdraw is sustainable.


4. Systematic Withdrawal Plan

In a systematic withdrawal plan, you only withdraw dividends and interest income generated by your investment portfolio, leaving the principal intact.

For example, if your retirement portfolio generated investment returns of $40,000 in year one and $51,000 in year two, you withdraw $40,000 and $51,000 per year, respectively.

This retirement withdrawal is the safest strategy because you don't touch your principal. However, in years where investment returns are low, you have less money to live on.


Final Consideration: 401(k) Withdrawal and IRA Withdrawal Rules

Whatever withdrawal strategy you choose, keep in mind that IRAs, 401(k)s, and other tax-deferred retirement accounts have required minimum distributions (RMDs). An RMD is a mandated amount of money you must withdraw from your account each year once you reach age 72 (age 70½ if you reached that age before or during 2019).5

If you fail to take your RMDs, you could face stiff penalties — a 50% tax on the difference between what was required and what you withdrew. When calculating your retirement withdrawals, be sure to withdraw at least your RMD amount. The remainder, if any, can be withdrawn from your non-retirement accounts.

In addition to withdrawing enough to avoid penalties, you want to ensure you're tapping your retirement accounts at the right time. In general, if you start taking withdrawals before the age of 59½, the IRS imposes a 10% penalty.

There are a handful of exceptions,6 so make sure you meet one of those exceptions if you plan to start taking withdrawals before age 59½.

Note that there are no RMDs for Roth IRAs,7 but Roth 401(k) accounts are subject to the same RMD rules that apply to traditional 401(k) accounts.


Planning Your Retirement Withdrawal Strategies

Withdrawal strategy has its pros and cons, and there's no one hard and fast "rule" that works best for every individual. If you're approaching retirement and want to find the optimal plan for your circumstances, consult your Synovus financial advisor. They may recommend one of the above strategies or a combination of two or more. Either way, being productive about your retirement planning can help ensure you're on the best path to meet your financial goals.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Jessica Blankenship, "What Is the 4% Rule for Retirement Withdrawals?" Bankrate, published April 22, 2022, accessed May 17, 2022. Back
  2. Rob Berger, “What Is the 4% Rule for Retirement Withdrawals?" Forbes, updated May 20, 2020, accessed April 25, 2022. Back
  3. Bogleheads.org, “Withdrawal Methods," updated October 25, 2021, accessed April 25, 2022. Back
  4. BlackRock, “What Are Retirement Withdrawal Strategies?" accessed April 25, 2022. Back
  5. IRS.gov, “Retirement Topics — Required Minimum Distributions(RMDs)," updated May 3, 2021, accessed April 25, 2022. Back
  6. IRS.gov, “Retirement Topics – Exceptions to Tax on Early Distributions," updated April 7, 2022, accessed April 25, 2022. Back
  7. IRS.gov, "Retirement Plan and IRA Required Minimum Distribution FAQs," updated March 16, 2022, accessed May 17, 2022. Back