We are 54 years old, have $4.5 million in savings but don’t know how to withdraw them in retirement. What should we do?

My wife and I are both 54 years old and have accumulated a taxable account totaling $2.3 million and retirement assets totaling $2.2 million. We hope to retire at age 55, and are considering how best to take our distributions. Clearly we won’t touch qualified money until we reach 59½.

I understand the 4% rule, but when it comes to taking the money, is it better to have a monthly, quarterly, or annual drawdown, or is it better to take a lump sum? I can see myself going crazy trying to time market highs in order to take distributions. I planned to take money off the table after the 2021 peak. I deliberately held out until 2022 for tax purposes and it backfired.

Is the best course of action to set it and forget it on a monthly, quarterly, or yearly basis?

See: I’m 54 and the main breadwinner, but “professionally, I’m exhausted” – we have $2.18 million, but what about health care?

Dear reader,

You are touching on a very common problem among retirees: the distribution phase.

For decades, Americans have been told to save, save, save for retirement, but then they get to the point where they have to start using the money…and it can be a messy process. Retirees should have an idea of ​​how much to withdraw, how that distribution will impact the rest of their nest egg, what to expect come tax time, and how not to use that money too quickly.

Like so many others in personal finance, the answer to your question depends heavily on individual circumstances. I’ll come back to that in a minute.

First, a note on the 4% rule. This rule is meant to be a guideline. For some people, 4% is too much, while for others it is not enough. Experts have also argued its applicability – Morningstar, for example, said retirees could use a rate of 3.3% and have a 90% chance of not running out of money in retirement.

Want more practical tips for your retirement savings journey? Read MarketWatch “Retirement Hacks” column

Before you commit to the 4% rule (which, of course, you can always adjust over the years), do some quick math on how much you plan to spend in retirement – with a buffer included – and see what is the percentage of your total retirement savings actually is. You may be able to keep more in your retirement assets than expected.

If you’re still not sure how much to withdraw, maybe start a little more cautiously in order to preserve your investments. The less money you withdraw, the more your accounts can continue to grow.

Also be aware of so-called “streak of returns” risk, which occurs when the value of your portfolio drops too quickly at the start of your distribution journey. The result might be less than ideal for your account.

Read: The Decumulation Drawdown: How Spending Became the Biggest Retirement Dilemma

Pay attention to the tax implications of your decision and consider consulting a qualified financial planner and/or accountant to help you manage the numbers. There are a lot of factors that you haven’t included in your letter, such as whether some of that money is in Roth accounts, and even then a qualified financial planner can go into granular detail to help you. to get the most out of your retirement expenses and savings. You might find Roth conversions advantageous as your taxable income declines – it’s also a way to avoid required minimum distributions later.

Plus, you’re right not to touch your retirement assets until you’re 59½ (and for readers who don’t know, that’s when most retirement account assets retirement become available without incurring a penalty). There are exceptions, such as the “rule of 55”, which allows you to withdraw from your retirement account after separation from service if you are 55 or older. The account you can withdraw from must be related to the job you are parting from, and there may be other stipulations attached. Check with your employer about what you are or are not allowed to do with your pension plan.

Now, how often to distribute. It will depend on your comfort level, but some advisors suggest withdrawing six to 12 months of monthly expenses into a money market account and then creating a paycheck effect. “Setting up monthly or bi-weekly distributions will make it feel like you’re always working and help you stick to your budget,” said Brian Schmehil, Certified Financial Planner and Managing Director of Wealth Management for The Mather Group.

Also see: At 55, I will have worked for 30 years — what are the advantages and disadvantages of retiring at this age?

Make sure the accounts you tap into have shorter investment horizons and less risky investments, which will help you “keep spending what you want to spend and achieve your goals without having to be too mindful of market volatility,” Schmehil said. . This is in line with the tranched approach, which involves dividing your assets into different investment horizons. The least risky is in your short term “bucket”, while the riskiest investments are for the long term.

Having a monthly distribution schedule can help you stay in control. “I like to use monthly for most people,” said David Haas, certified financial planner and owner of Cereus Financial Advisors. “It gets them thinking about a monthly budget if they tend to overspend.”

Keep in mind the number of variables that can change during your retirement. For example, if you change where your retirement money comes from – your taxable account, your retirement accounts, Social Security, etc. – your tax obligations may change. Additionally, inflation may impact your expenses or how quickly you reduce your distribution. Your risk tolerance can also change, especially as you get older and watch your nest egg dwindle or face market volatility. How often you take your money can also change, and if it does, that’s okay.

Readers: Do you have any suggestions for this reader? Add them in the comments below.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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