When Ellen, a 67-year-old retiree, reached out to Suze Orman during her podcast, she had a straightforward yet crucial financial inquiry: “Which bucket do I draw from first?”
Ellen, whose Social Security covers most of her daily living expenses, needed guidance on how to use her different types of retirement accounts for additional expenditures like travel.
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Orman’s response highlighted a strategic approach to managing retirement savings. She advised against the intuitive choice of withdrawing from regular savings or Roth IRA accounts first.
Instead, she suggested prioritizing withdrawals from accounts that impose tax implications, like traditional or rollover IRAs. “You are not making that much money,” Orman explained, pointing out that Ellen’s primary income comes from her Social Security, which is tax-free under her current financial conditions.
Ellen’s situation, Orman noted, positions her advantageously for tapping into her traditional or rollover IRA accounts. By doing so, Ellen could potentially withdraw up to $15,000 a year without owing taxes, thanks to the standard deduction. This method maximizes the tax-free growth benefits of her Roth IRA, allowing those funds to accumulate interest longer, potentially increasing her financial stability in later years.
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KT, Orman’s co-host, admitted to leaning toward simpler withdrawal strategies, underscoring the complexity and importance of informed financial planning in retirement. Orman’s expert advice not only addressed Ellen’s query but also educated listeners on the nuanced decisions retirees must navigate to optimize their financial resources.
Traditional financial experts often recommend several strategies for withdrawing retirement funds, which can contrast with the specific advice given by Suze Orman. The most commonly cited strategy is the 4% rule, suggesting that retirees withdraw 4% of their retirement portfolio in the first year, adjusting annually for inflation to ensure the fund lasts at least 30 years. However, Suze has called this move “very dangerous” in today’s economic climate.
By understanding the tax implications and growth potential of different retirement accounts, retirees like Ellen can make informed decisions that enhance their financial longevity and stability.
Due to the complexities of tax laws and varying account rules, consulting with a financial advisor is highly recommended to ensure that any withdrawal strategy is tailored to individual needs and circumstances. This personalized guidance helps navigate the nuanced decisions required for optimizing financial resources throughout retirement.
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*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.
Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest, and eHow. She is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes the information contained herein is reliable and derived from reliable sources, there is no representation, warranty, or undertaking, stated or implied, as to the accuracy or completeness of the information
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This article ‘Which Bucket Do I Draw From First?’ Suze Orman Explains To 67-Year-Old The Best Order For Tapping Into Her Retirement Accounts originally appeared on Benzinga.com
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