Financial advisor Bob Gavlak creates a formal withdrawal plan for his clients as part of an overall financial plan and includes a strategy for turning on different income streams, a detailed financial breakdown of the first five years of retirement, overall budget recommendations and a first-year withdrawal rate.

“This is important because one threat to a successful plan is a major downturn in the stock market at the start of retirement, and if we know the first-year withdrawal rate, we can better understand how much exposure the client has to a downturn,” said Gavlak, a Certified Financial Planner with Strategic Wealth Partners in Columbus, Ohio.

Those who are making withdrawals withdraw on average 5 percent and those who withdraw on an ad hoc basis do so mainly because they live on social security income, which puts them at a disadvantage in the long run.

“Having a strategy in place early on gives a retiree time to decide if that plan is adequate,” said Gavlak. “If you wait until the month before retirement and find your assets cannot support your lifestyle, it may be too late to make any adjustments to your withdrawal plan.”

Some 63 percent withdraw from their IRAs or 401(k) plans on an ad-hoc basis, even though establishing a formal withdrawal plan within the first couple of years in retirement is ideal.
 
“Ad-hoc withdrawals add up, and your account dwindles much faster than you may have hoped or anticipated,” Gavlak said. “With a withdrawal strategy in place, retirees are forced to live within a certain budget, much like during working years when there was a set paycheck.”
 

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