For this audience the discussion also needs to include how to take money out of the portfolio in coordination with Social Security. While we often discuss the 4% rule, and more recently whether the 4% still stands up, the reality will have more moving parts than simply taking 1% per quarter…or 82 basis points per quarter with the intent of never depleting your principal.
What types of accounts do you have your money allocated across and in what percentages? Types of accounts could include regular taxable accounts, traditional IRAs, 401k plans, HSAs, Roth IRAs and maybe some others and they all have different tax treatments. There are ways to manage what accounts you withdraw from such that you hopefully end up paying less in taxes or at the very least deferring taxes paid. While there are some rules of thumb it depends largely on your mix in whatever types of accounts you have.
Depending on your combination it very well could make the most sense, tax-wise, to deplete an account before tapping another. The idea of depleting one account entirely over some period of years while allowing others to grow untapped might be difficult to wrap your head around and obviously in the end you have to be comfortable with whatever withdrawal strategy you use but for most people it will not be simple.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.