• The Mountain Journey of Investment Withdrawals

    by Jason Gunkel CFP® CFA CAP® Chief Investment Officer | April 10, 2019

    Experienced mountain climbers often say that going down a mountain is far more difficult than climbing up. In a similar way, after investors have “climbed up the mountain” of accumulating enough savings for their retirement, figuring out the best way to “climb down the mountain” or take withdrawals from their accounts can be just as challenging.

    The set of decisions an investor has to make when taking distributions from their accounts can be divided into three broad categories: retirement, tax, and investment.

    The first category of retirement refers to making sure the amount of the withdrawals are sustainable for the remainder of life. The withdrawals need to be coordinated with retirement projections that take into account many variables such as other resources available and expected returns and inflation.

    The second category of tax refers to the strategies trying to minimize the taxation of withdrawals over an investor’s lifetime. Investors can have different “buckets” of money that will be taxed differently when money is withdrawn. These buckets may include Traditional IRA or 401(k) money that will be taxed at ordinary income rates, non-IRA money that will be taxed at lower capital gain rates, and Roth IRA money that can be withdrawn tax-free.

    The best analysis to determine the proper buckets to withdraw from will include long-term income tax projections. Investors do not want to deplete all of their lower taxed assets only to be forced to withdraw from higher taxed assets later in life that push them into a higher tax bracket. The tax projection could highlight opportunities to incur more taxes now or convert Traditional IRA money to Roth in order to reduce the required minimum distributions that must begin at age 70½. There could also be opportunities to realize capital gains up to a certain threshold that will not be taxed at the federal level.

    Investors should be aware that the taxable income generated from taking investment withdrawals can also affect the taxation of their Social Security benefits and the amount of their Medicare Part B premiums. These are other factors that need to be taken into consideration.

    Finally, the third category of decisions center around investments and determining the best securities to sell to generate the money needed for withdrawals. Investors would be wise to create another “income bucket” of money consisting of secure assets such as short-term bonds that can serve as the ultimate source of withdrawals. This bucket should be funded with a minimum of 12 months’ worth of withdrawals so investors are not forced to sell securities after a market downturn. Other good ideas for refilling this bucket are having the dividends and interest generated from other investments funneled into it or capturing gains from good stock investments after a prolonged market upswing.

    Mountain climbing is more dangerous alone so investors should have a good financial advisor to help them trek down the mountain of investment withdrawals successfully.

    Jason Gunkel CFP® CFA CAP® Chief Investment Officer
    Jason Gunkel, CFP®, CFA, CAP® has been with Syverson Strege since 2004 when he started as a college intern and worked his way into his current roles as Chief Investment Officer and Financial Planner. He spent a short time at Principal Global Investors before realizing that his passion is working directly with individuals and families to help them achieve their goals. He leads the Investment Committee where he helps design and monitor the firm’s investment strategies. Jason received a bachelor's degree in finance and accounting from Drake University and is a CERTIFIED FINANCIAL PLANNER™ practitioner and has earned the Chartered Financial Analyst (CFA®) designation. Jason has a special interest in charitable giving strategies and has completed the Chartered Advisor in Philanthropy (CAP®) program.

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