What is the worst time to withdraw money from a stock account?
The worst time to take money out of a stock account is when it is down. Let’s take a real-life example I heard from a client. This woman had around $700,000 in an IRA. One year, her investments were down by about 4.5%. This translates to a loss of about $31,000. Coincidentally, $30,000 is the amount she withdraws from the account to live on each year. This means that she lost $31,000 and had to withdraw $30,000 in the same year, dropping her account balance down by $61,000. If this happens again, her account value could lose another $60,000 or $70,000.
In retirement, your money should always go up in value at a steady pace. Some investors like bonds or treasury bills and some like CD’s and annuities. These are all safe investments to keep your money from losing value, but most of the time these investments are taxable. Whole life insurance grows tax deferred, and the money can be withdrawn tax free as well. Banks put their money in whole life insurance as Tier 1 (least risk) capital because of the safety but offer CD’s and bonds to customers. All of these strategies have different elements and must be reviewed carefully before using any of them in a financial plan.
The bottom line is this: Don’t put all your eggs in the stock market basket in retirement. Have some money in stocks but also have money in strategies that continue to grow no matter what the stock market does. Withdraw from the safe investments (Whole life Insurance) when the stock market is down but take money from the stock account (IRA, 401K, etc.) when the market is up. This strategy has been implemented for years and its best to talk to your financial professional to get this setup. If you’re not sure what to do, reach out to us and we will explain in detail your available options. Consultations are always free.
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