Decisions, Decisions

By Paul R. Ruedi, CFP®

When you are working and saving, managing your investment portfolio is fairly straightforward. But when you retire and those paychecks from an employer are no longer coming in, you must turn around and start taking money out of your investment portfolio. This is where it gets complicated, because these portfolios are often split among several different types of accounts and different investments in those accounts. 

Every dollar you want to withdraw and spend must come from somewhere in the portfolio. This means every dollar spent requires several decisions. Though it may sound easy to do this yourself, most people underestimate just how many decisions they will have to make. 

So picture this. You’re retired. Your checking account is getting low and you need to refill it by withdrawing from your investment portfolio. You must ask yourself:

Which account should I withdraw from? If I am withdrawing from a traditional retirement account, that will count as taxable income and impact my taxes. Will it bump me into a higher tax bracket? Or cause my income to go above a Medicare IRMAA threshold and increase my monthly premiums?

Maybe I should pull from my Roth account to avoid increasing my income now? But what if preserving that Roth money is valuable enough that it's worth withdrawing from a traditional account and paying some taxes now instead? What if I’m heading toward big RMDs and a large tax bill as a result of leaving too much in my traditional account when I could have withdrawn it at a lower tax rate today?

Which investment in a particular account should I sell? Should I sell to rebalance toward my target asset allocation? Do I have a target portfolio asset allocation? What if this is a taxable account and some positions have gains? Should I prioritize rebalancing the portfolio or minimizing taxes?

Now consider you have to make all those decisions not just once, but every time you decide to withdraw a dollar for spending. If all those decisions themselves aren’t enough to stress you out, after you make them you may worry, did I do the right thing? If you don’t have a plan, every dollar you pull out of your investment account makes you wonder, am I withdrawing too much? Am I going to regret this later?

It’s enough to burn a person out, even if you are completely capable of making all these decisions yourself. If you feel like outsourcing all those decisions so you can spend your time and energy enjoying retirement, you may want to talk to a financial advisor.

Paul R. Ruedi is a Certified Financial Planner™ professional with Ruedi Wealth Management in Champaign, Illinois.