Most of the focus on retirement planning is on accumulating assets. Hey, you need money to live on right? That generally includes 401k plans, IRAs and other qualified vehicles. Those accumulated investments are to provide income through your retirement life. That means once you retire you must stick with a withdrawal plan based on those assets and their assumed growth.
Let’s say you will live on 4% of your retirement funds plus Social Security. Either that income must exceed your ongoing expenses allowing you to save in retirement or you must have other assets you can draw upon. These assets are not part of your retirement funds, they are in addition to.
Why, you may ask. Because if you have a financial emergency, say a new roof, a large car expense, health care bills, who knows and you take that money in a lump sum from retirement savings, your income plan may be kaput. You have depleted your assets and lowered their ability to sustain the earnings you were counting on.
Bottom line; have savings in addition to retirement funds and have income sufficient to replenish those funds if necessary. Or, live below your retirement income means and accumulate funds from the money you are required to withdraw from your qualified accounts. (RMDs).
If you plan to take that dream cruise, it must come from your budget and not a $10,000 extra withdrawal from your retirement accounts. Oh wait, that’s $13,000 – taxes remember.