Managing Income

If you need to withdraw from your 401(k) to live comfortably when you retire, there’s no reason to wait. But if you have other sources of income, or if you expect to be earning money from another job or a post-retirement career, you may want to wait as long as the law allows. Since there’s the potential your account value will increase, it may make sense to allow your tax-deferred accounts to continue to accumulate untouched as long as possible.

You can anticipate your post-retirement living expenses by analyzing what you’re spending in the year or two before you retire. You may feel comfortable estimating that you’ll need 15% to 20% less after you retire. But be sure to consider the possibility of increasing medical expenses, insurance costs, local taxes, and other regular bills.

Then add up what you expect to receive from Social Security, any defined benefit pension you qualify for, your spouse’s income if you’re married, and any income you’ll be earning. You might also add dividends and interest from your taxable investment accounts, or the possibility of taking capital gains. If that total is less than you’ll need, that may be a signal to begin withdrawals.

Time to Roll? Remember, in some cases, your employer may require you to begin drawing on your assets at retirement. If immediate income fits in with your plans, there’s no issue. But if you prefer to wait, that may be a reason to roll over the assets into an IRA.