Generating Income in Retirement

June 29, 2022

When it’s time to leave the workforce, you want to enjoy retirement without worrying about money. We share some concepts that can impact your retirement income.

Replace your paycheck. Consider all of your sources of income and determine how much you will need to withdraw from your portfolio. Then, turn on a monthly distribution from your investment portfolio to your local checking account for a seamless transition to retirement income and continue to manage your expenses and your budget as you did before retirement.

This will help to normalize your withdrawals and avoid having to raise cash unexpectedly (and avoid the stress and losses of potentially selling investments in a down market). Regular, predictable monthly distributions to your checking account will also help you monitor spending to make sure you’re living within your means.

Optimize Tax Brackets. Just as your income will change in retirement, so will your taxes. For many, this change may create a brief tax-planning opportunity for a few years in early retirement. For example, if you retire at age 65, you may find yourself with little to no income, perhaps only portfolio income. Contrast this to your age 72 retirement income when you are collecting Social Security and your Required Minimum Distributions* (RMDs) have begun. If you have significant retirement account assets, your tax bracket may jump dramatically once RMDs begin.

Consider shifting some of your age 72+ income (at the higher tax brackets) to your lower age 65 to 72 tax brackets to take advantage of those lower tax brackets. You’ll also lower your RMDs, your future tax bills and likely the total amount of taxes you pay over your lifetime.

If you don’t need the income to live on, consider converting your Traditional IRA to Roth IRAs via a Roth conversion. Roth IRAs have no RMDs and since withdrawals are tax-free, they are more tax-efficient to pass on to your heirs than Traditional IRAs.

Your future self and your family will thank you!

As always, your Washington Trust Wealth Advisor is ready to assist you with your specific situation. Follow us to learn more!

*RMDs are funds that you must withdraw from almost all tax-qualified retirement accounts based on your life expectancy and the value of the account, beginning at age 72.

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