At age 67, I did my best retirement accounts. What is the best one to use in retirement?
Laying the foundation for a retirement nest egg takes a lot of work.
As of 2022, the average 67-year-old's retirement account balance was about $609,000, according to the Federal Reserve. If your nest egg is equal to or greater than that number, then you've done an excellent job of building retirement wealth.
But saving is only one part of the foundation. Making money is always the glue that holds everything together.
To do that, you have to be strategic about spending your savings. That means coming up with a withdrawal rate that works for you. It also means knowing which of your retirement accounts you should take money from first. If you think you have a mix of accounts including a savings, brokerage account, traditional IRA, and Roth IRA, here's an order you might want to work with.
Ideally, put some of your retirement savings into a taxable brokerage account. IRAs (and 401(k) plans, for that matter) force you to wait until age 59 1/2 to withdraw income without penalty, and they limit the amount of money you can contribute to retirement each year.
A brokerage account allows you to invest as much as possible in a given year. And you can withdraw from that account without penalty at any time. It pays to tap into your brokerage account first because, in retirement, you don't enjoy tax-deferred or tax-free benefits. You can also leave your accounts that there is getting those benefits only for as long as possible.
If you have a traditional IRA, you'll need to use it at some point to meet your required minimum distribution (RMD). Failure to take an RMD results in a 25% penalty.
If you're 67 now, RMDs start at age 73. But even if you haven't yet, it's wise to withdraw money from a regular IRA next time because your associated tax bill is predictable.
However, you never know what the future holds for tax rates. If they go up after the Tax Cuts and Jobs Act expires at the end of 2025, your regular IRA withdrawals could cost you more. So it pays to take that money out now because if anything, tax rates may go up over time, not down.
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