Retirement Income

How much can I safely withdraw from my portfolio each year in retirement?

The 4% guideline (withdrawing 4% in the first year and adjusting for inflation each year) has historically sustained a 30-year retirement in most scenarios based on historical data. However, it is a guideline, not a guarantee, and several factors affect the right number for your situation: your actual retirement timeline (someone retiring at 60 may need to fund 35-plus years), your other income sources, your investment allocation, your flexibility to reduce spending during downturns, and your estate planning goals. An annual review of your withdrawal rate, rather than setting it once and following it indefinitely, is a more reliable approach over a long retirement.

When do I have to start taking required minimum distributions and how has the starting age changed?

The RMD starting age has changed twice in recent years. Under the original SECURE Act (2019), the age moved from 70.5 to 72. Under SECURE 2.0 (2022), it changed again based on birth year: if you were born between 1951 and 1959, your RMD age is 73. If you were born on January 1, 1960 or later, your RMD age is 75. RMDs are calculated each year based on your prior year-end IRA or 401(k) balance divided by an IRS life expectancy factor. Failing to take your full RMD by December 31 results in a 25% excise tax on the shortfall, reduced to 10% if corrected promptly. For clients with large traditional IRA balances, anticipating the income and tax impact of future RMDs is one of the primary reasons to consider Roth conversion planning well before the RMD starting age arrives.

How do I coordinate Social Security, a pension, and IRA withdrawals without creating a tax problem?

Coordination is the key word, because drawing from each source has different tax consequences that affect the others. Social Security becomes more taxable as other income rises. IRA distributions are fully taxable as ordinary income. Pension income is fixed and fully taxable. The question is which sources to draw from in which years, at what amounts, to manage total taxable income across retirement. In many situations, the optimal approach involves delaying Social Security while doing Roth conversions during the years when income is lowest, building a Roth account that can be tapped tax-free later without affecting Social Security taxation, and sizing IRA distributions each year to fill your bracket without crossing into the next one. The specific sequence changes each year based on your actual income picture, which is why this is an ongoing annual exercise, not a one-time decision made at retirement.

I was laid off at 57 and I'm not sure I want to go back to work. How do I know if I can afford to retire now?

An unplanned retirement at 57 is one of the more complex income planning scenarios, and the answer depends on several variables that need to be modeled together rather than estimated individually. The key questions: How much income do you need annually, and how much flexibility do you have in that number? How large is your investable portfolio? What will your Social Security benefit be at 62, at 67, and at 70, and which start date makes sense given your other income? Do you have any pension income? What does healthcare coverage cost between now and Medicare at 65?

 At 57, you have roughly 10 years before Social Security at 67, and a front-loaded withdrawal period with no further contributions to the portfolio. That combination requires careful modeling to understand whether the numbers work, what the margin of safety looks like, and which assumptions are most sensitive to change. We can run a full retirement income projection that shows you clearly whether retiring now is viable, and what levers you have if the initial numbers are close. Call 925-830-1700 or visit tomrensullivan.com to schedule a complimentary review.

My spouse just passed away. What financial tasks actually need to happen in the first 90 days and which ones can wait?

The instinct to slow down and not make major financial decisions after losing a spouse is generally sound, but a few time-sensitive tasks require attention in the first 60 to 90 days. The ones that should not wait include: notifying Social Security to ensure the correct survivor benefit is established and any overpayments are addressed promptly; notifying financial institutions and retirement account custodians of the death so accounts can be properly retitled or transferred; filing any pending life insurance claims; and reviewing whether the deceased spouse had an IRA requiring a beneficiary election decision before year-end.

 Decisions that can and should wait include anything involving liquidating investments, changing your overall investment strategy, selling your home, or making large gifts. The general one-year guideline for deferring major decisions is not arbitrary: grief affects judgment in ways that are not always visible from the inside, and the financial decisions made in the first year after a loss are among the most frequently regretted. A financial advisor experienced in estate transitions can help you separate the urgent from the merely pressing.