Withdrawals from 401Ks

How much can you withdraw annually in retirement and stay solvent? The longtime standard answer is 4%. But 3% may be more prudent if stocks and bonds continue offering low returns into the future.

How much can you withdraw annually from your investment portfolio to be sure you don't outlive your money? Here are three tips to get you through retirement financially.

Don’t get bogged down worrying about exogenous issues like inflation rates, historical investment rates of return and life expectancy projections. Instead, focus more on the things that you can control like living within your means, how much you pay in taxes and taking appropriate risk for your situation.

The most important retirement planning task for your last working year is calculating where your income comes from when you retire. This probably seems completely obvious, but it usually isn’t. Your portfolio needs to yield more every year to keep up with inflation.

Longevity is a blessing and many of us are living longer. Unfortunately, this makes retirement planning much more complicated. In retirement, you may be wiser to take out less money from your savings than you planned.

Although financial professionals often rely on long-term historical averages when making capital market assumptions, not all starting points are the same. Getting into the market when valuations are high is dangerous. Investors need to take current stock market valuations into account as they make financial plans and allocate assets.

 
Now, more than ever, the wisest move for dealing with Social Security is to delay filing for as long as possible.
 
Right now, people born between 1943 and 1954 receive full retirement benefits at age 66. If they filed early at 62, the earliest most can claim a benefit, their Social Security payment gets reduced 30% of what they would earn by waiting until 66. If they wait until after 66, they get more than the full benefit.
 

 
When figuring out how much they can safely withdraw from a retirement portfolio, a lot of people use a straight-line model. Here, the standard software assumes that every year you earn the average return and remove a fixed dollar amount, adjusted for inflation. This is a big mistake.
 
There is no guarantee that things will go so smoothly. If the past few years demonstrated anything, it is that you can’t plan for a future of stable returns.
 

 
One variable that is hard to plan for in retirement is taxes. There are steps you can take, though, despite the uncertain tax landscape.
 
We don’t even know what the tax rates will be in 2013, so how can you plan for 20 years or more in the future? We can’t say whether rates will be higher or lower, or if tax-preferred investments will change. But not knowing doesn’t mean that you shouldn’t be planning.
 
Gather the Data
 

Every now and then you probably ask yourself, “When should I retire?” Is it simply a matter of finances? Or do you retire when you’ve “had enough” and are simple unwilling to take it anymore?
 
Of course, there is no one answer for everyone. But you can ask yourself the following questions and easily come to a better-informed conclusion:
 
1. How much does it cost you to live on average each month?
 

The word is out that the Internal Revenue Service is less and less lenient regarding individual retirement account mistakes. Potential penalties are large.
 
Failing to take a required minimum distribution from your IRA socks you with a whopping penalty that is 50% of the RMD itself. The penalty for an improper IRA contribution is 6% annually, potentially accumulating for years on end. As a result, you should be more cautious than ever complying with all IRA rules.