When Ellen, a 67-year-old retiree, reached out to Suze Orman during her podcast, she had a simple but crucial financial inquiry: “Which bucket should I draw from first?”
Ellen, whose Social Security covers most of her daily living expenses, she needed guidance on how to use her different types of retirement accounts for additional expenses such as travel.
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Orman's response emphasized a strategic approach to managing retirement savings. She advised against the intuitive choice of withdrawing money from regular savings Roth IRA accounts first.
Instead, she suggested prioritizing withdrawals from accounts that have tax implications, such as traditional or rollover IRAs. “You don't make that much money,” Orman explained, noting that Ellen's primary income comes from her Social Security, which is tax-free under her current financial circumstances.
Ellen's situation, Orman noted, positions her favorably for tapping into her traditional or rollover IRA accounts. By doing this, Ellen could potentially take out up to $15,000 per year without owing taxes, thanks to the standard deduction. This method maximizes the tax-free growth benefits from her Roth IRA, allowing those funds to accumulate interest for longer, potentially increasing her financial stability in later years.
Trending: If the United States had access to the current interest rate on savings accounts with a high return in 2015, not a cent would have to be saved.
KT, Orman's co-host, admitted he was 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 question, but also informed listeners about the nuanced decisions retirees must make to optimize their financial resources.
Traditional financial experts often recommend different strategies for withdrawing retirement funds, which may contrast with Suze Orman's specific advice. The most commonly cited strategy is the 4% rule, which requires retirees to withdraw 4% of their retirement portfolio in the first year and adjust annually for inflation to ensure the fund lasts at least 30 years. However, Suze has this move “very dangerous“in the current economic climate.
By understanding the tax implications and growth potential of different retirement accounts, retirees like Ellen can make informed decisions that increase their financial longevity and stability.
Due to the complexity of tax laws and varying accounting rules, consultation 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 needed to optimize financial resources during retirement.
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*This information is not financial advice and personal guidance from a financial advisor is recommended to make informed decisions.
Jeannine Mancini has written about personal finance and investing for the past thirteen years in various publications, including Zacks, The Nest, and eHow. She is not a qualified financial advisor and the contents of this document are for informational purposes only and do not and do not constitute investment advice or any investment service. Although Mancini believes that the information contained herein is reliable and from reliable sources, no representation, warranty or undertaking, express or implied, is made as to the accuracy or completeness of the information.
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This article 'Which bucket should I draw from first?' Suze Orman explains to 67-year-old the best order to use her retirement accounts originally appeared on Benzinga.com
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