Upon retiring, where should you be pulling your money from first when you have to spend? Should you use your cash on hand first or should you pull from your retirement accounts?
There are many strategies to consider when creating confidence in your financial future. Capital City Financial Partners recommends that you should spend your cash on hand first before taking from your retirement accounts. In an ideal scenario, you want to avoid dipping into those retirement accounts!
But why? Let’s talk a little bit more about this.
Spend Cash On Hand First
The reason you want to spend your on-hand cash first is so that you can leave those retirement accounts alone for as long as possible to mature. With investment accounts, time is an incredibly valuable resource. The longer these accounts have to mature, the more money they will hold & the farther away from a withdrawal penalty you’ll be. With that being said, the longer your retirement investment accounts go untouched, the more opportunity you can create for financial stability in retirement.
We recommend that you have enough cash on hand to cover one to two years of daily living expenses. You can call this your safety net or your “cash cushion.” When establishing your cash cushion, there are a couple things to note. This should not include any social security or pension income. This can, however, include things such as bank savings, CD’s, and short-term bond funds.
No Cash Available? No Problem!
If you do have to withdraw money from your retirement investments, it is by no means the end of the world! CCFP advises you to first withdraw from taxable accounts, then from tax-deferred accounts, and finally from your Roth accounts, where withdrawals are tax free. This withdrawal strategy comes back to that maturity time. We want to provide the opportunity for those tax-deferred investments to grow with time.
In summary, spend your on-hand cash first in retirement before pulling from those retirement accounts.
Planning and saving for retirement, we know, is daunting! We hope this information leaves you feeling educated and confident in your financial future. If you have any questions, reach out today to receive advice from a financial advisor on your retirement.
This content has been repurposed from our YouTube video, “Which Account Should I Pull From First in Retirement?” Feel free to learn more on our YouTube Channel.
