Workers spend their entire careers saving for retirement, but when it’s time to shift from saving to spending, many retirees struggle to know where to begin.\u00a0 <\/p>\n
“The biggest mistake I usually see when working with retirees is their treating their retirement savings like one big checking account and every dollar as equally valuable,” said Evan Mills, an associate financial advisor at Scholar Financial Advising in Winston-Salem, N.C. “A 401(k) withdrawal plan, or any withdrawal plan from retirement accounts, should be planned for and built before retirement, not improvised as paychecks stop.” \u00a0 <\/p>\n
Mills says retirees should have a clear plan for which account they’ll tap first, how much they can withdraw without hurting their savings, and how taxes will be managed in each account.\u00a0 <\/p>\n
Read more: What is the retirement age for Social Security, 401(k), and IRA withdrawals?<\/a> <\/p>\n<\/p>\n The retirement savings mindset shift\u00a0 <\/p>\n A recent study by the Nuveen and TIAA Institute found that only 19% of late-career 401(k) participants have thought a lot about how they will withdraw retirement income from their 401(k) savings. Even among late-career participants who expect 401(k) savings to be their most important retirement income source, only 23% said they have thought a lot about withdrawals. <\/p>\n Part of the challenge could be a lack of retirement fluency and longevity literacy.\u00a0 <\/p>\n The same survey assessed retirement fluency among 401(k) participants using 15 questions covering five topics, including Social Security benefits, Medicare benefits, and long-term care.\u00a0 <\/p>\n On average, 401(k) participants answered only 32% of the retirement fluency questions correctly. More than half (52%) of participants answered fewer than one-third (five) of the questions correctly, and only 7% answered 10 or more questions correctly.\u00a0 <\/p>\n “Retirees need to prepare for a major mindset shift. You are moving from saving to spending, and replacing your paycheck means manufacturing steady income out of a potentially volatile bucket of assets,” said Margie Glenn, a CFP\u00ae, CPA, and advisor with Moneta.\u00a0 <\/p>\n “Without a formal distribution plan, you are flying blind,” Glenn said. “You risk either overspending early and jeopardizing your long-term security, or fearfully underspending and failing to enjoy the retirement you sacrificed a lifetime to build. Accumulating the wealth is only the first half of the plan; a dynamic distribution strategy is how you win the second half.”\u00a0 <\/p>\n Read more: How much does a financial advisor cost?<\/a> <\/p>\n How 401(k) withdrawals work <\/p>\n