How to Avoid Tanking Your Portfolio in Retirement

Making your money go further in retirement is a challenge that many Americans may be unprepared for.

According to most recent RICP Retirement Income Literacy Survey from The American College of Financial Services, 82 percent of Americans have unrealistic expectations about the need for long-term care later in life. Less than half of those polled understood that a life annuity can protect their assets against life expectancy risk.

When it comes to managing your portfolio in retirement, what you’re doing wrong is just as important as what you’re doing right. Recognizing what behaviors could be counterproductive to your goals is an important step in making the most of your investments during your later years.

How you withdraw assets counts. Having investments in both qualified and taxable accounts can work to your advantage, but the order in which you tap these assets is critical, says Kyle Whipple, a financial advisor at C. Curtis Financial in Plymouth, Michigan.

“Most retirees will wait to withdraw funds from their individual retirement account until they absolutely have to at age 70 1/2 because they don’t want to pay taxes on those funds,” Whipple says. “Instead, they’ll draw from their nonqualified funds because they like that it doesn’t add to their taxable income.”

[See: 7 Tips for Finding the Best Target-Date Retirement Funds to Buy.]

Whipple says that if a 60-year-old has $500,000 in an IRA, it’s feasible that the account could increase in value to $1 million by the time the person reaches 70 1/2. The required minimum distribution on that amount would be around $36,500. Whipple says the distribution, along with Social Security benefits, pension payments or other income could push him or her into a higher tax bracket.

Rather than delaying withdrawals from a traditional IRA, you may reap more benefits by withdrawing those assets earlier in retirement. Incorporating withdrawals from Roth accounts or taxable investments could also be helpful if minimizing your tax…

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