How to Get the Most from your Retirement Funds

Retirees need to conserve their retirement funds as long as possible. However, since various assets are taxed differently - and yearly where required - the order in which you withdraw income from your retirement funds could significantly have an impact on how fast you'll deplete your wealth. So in what order should you withdraw from which type of resources?  This post will focus on the singular issue of making retirement funds last longer by reducing the taxes on them.

The assets that comprise your retirement funds can usually be broken down as:
• pension income,
• Social Security earnings,
• financial benefits and investments - composed of

o taxable investment and
o tax-deferred investments associated with IRAs, 401(k)s, etc,

To maintain your retirement funds as long as possible, the principle would be to get the most growth from assets you don;t need to use yet while reducing yearly taxation of earnings and taxation of money that you do use. Those investments which are tax-deferred - all other variables being equal - will compound faster than these taxed investments that must forfeit some of their annual earnings to taxes. These latter investments compound slower. Therefore, the overall guideline would be to make use of a tax deferred retirement funds last.

Tax-advantage investments like your home or those subject to capital gains could often present small or no taxation to you. Based on these points, we recommend which assets you might withdraw from first or last to maximize yearly growth and minimize taxation. Refer to the table.

Your retirement pension will be taxable as ordinary income and you have no control over those payments as soon as they begin. So that income should be taken as it comes and taxes paid.

Another supply of retirement income is your Social Security payments. This is generally tax-free in case your other income stays under threshold amounts depending on your filing status; but up to 85% of social security income could be subject to social security tax. However make an effort to hold off getting your benefits until your full retirement age - most likely sixty-six for most of you. You lose some 30% of SS benefits at 62. Delaying 'til your seventy will credit you  about 30% greater benefits than at full retirement age.

Your IRAs and related tax deferred retirement funds of course grow tax-deferred. This enhances their yearly compounding capability. Anything you withdraw from them is taxed at your regular tax bracket. Therefore, allow them to ride and withdraw only the minimum required distribution amounts beginning at age 70½.

Roth IRAs compound tax-free, have no minimum distribution requirements, and you may withdraw from them tax-free. Don't touch them 'til last (or never). They are at the same time the perfect type of IRA for your beneficiary.

Your taxable retirement funds will have their dividends or interest earnings taxed every year. Withdraw from these first. Most anything withdrawn beyond the earnings will probably be untaxed or subject to taxes at reduced capital gains rates. Reap the benefits of any capital losses to offset taxes too (each year, sell your losers before December 31 and get the tax benefits - you can always buy them back later). Because of the inconsistent way that different assets are taxed, these retirement funds will deplete slower than withdrawing from tax-deferred investments.

Utilize your home equity as well. Like a tax-advantaged investment, you can sell it and buy down to get at the excess equity at small or no tax because the home sale tax exclusions is $500,000 for a married couple. Or, take a reverse mortgage which puts non-taxable cash in your hands.

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A few simple lessons can reduce stress and bring more joy in your retirement year. Stop worrying and learn the simple

actions to take.