Retirement planning before you retire is critical because everything changes once you stop working. After you quit and are no longer receiving a paycheck, you will have to generate income from a combination of your Social Security and any pensions. And if that’s not enough to live on, you’ll have to begin withdrawing money from your retirement savings. Keep in mind that you’ll have to start doing that every year anyway beginning at age 73 if you have a tax-deferred account like a traditional 401(k).
Which accounts should you deplete first? How can you keep from running out of money during retirement? Too many people don’t even know about RMDs (required minimum distributions). The IRS mandates that annual RMDs begin at age 73, and all withdrawals are subject to taxation at ordinary income tax rates when you take money out. That means if you have large traditional 401(k) or IRA accounts, you could have lot less saved than you think, and therefore less income in retirement. Even your Social Security benefit could get taxed—up to 85%—depending on your annual “combined” or “provisional” income!
