How Retirees Can Withdraw Money From Their 401(k) (2024)

If you’re approaching retirement or have just recently retired, a mission-critical task is using your 401(k), 403(b), 457, IRAs and other retirement savings to support your life in retirement. If you’re like most people, you’re concerned about stock market crashes and outliving your money. Let’s look at how you can withdraw from your retirement savings in a way that addresses these goals.

Withdrawing From Retirement Savings—The Overall Strategy

The best way to withdraw funds from your retirement savings is to use most of your savings to generate monthly retirement paychecks that are designed to last the rest of your life, no matter how long you live. You might also want to set aside some of your retirement savings for an emergency cushion to meet unpredictable expenses or to fund a “travel fun bucket” that provides a stream of cashflow for a temporary period to pay for travel while you’re still vital and healthy. But most of your savings should be devoted to lifetime retirement income generators.

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Once you set up your retirement income generators, then spend no more than the income you receive each month, together with any other retirement income you have, such as Social Security benefits. This way, you’ll most likely not outlive your savings.

To address stock market crashes, you’ll want to have enough protected retirement income such that you can sleep at night and won’t panic when the market crashes. Examples of protected income include Social Security, traditional pension benefits, and retirement paychecks generated through a method that’s designed to protect against stock market crashes (more on this topic below).


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You can also set up variable retirement paychecks that are significantly invested in the stock market for the potential to grow to address the risk that inflation will erode the value of your retirement income. In this case, you’ll need to be ready to cut back on your spending if your retirement paycheck decreases due to a drop in the stock market.

Next, let’s compare protected retirement income with variable retirement paychecks.

Protected Retirement Income

One way to use your savings to generate protected lifetime retirement income is to buy an annuity or other type of guaranteed retirement income product from an insurance company. There are many types of annuities, some with high-enough costs that they’ve given annuities a bad reputation. However, there are also annuities that are priced fairly, so you’ll want to do your shopping or work with a professional who you trust to find one that fits your budget.

One such type of annuity is called a “single premium immediate annuity,” aka SPIA, and works like a personal pension. You give the insurance company a sum of money, and they promise to pay you a lifetime monthly income, no matter how long you live. You can also continue the monthly income to your spouse or partner after you pass away, if you’re married or partnered.

Usually, the monthly benefit is fixed in its dollar amount, but you can also buy annuities that increase each year at a fixed rate to address inflation. One challenge with a SPIA is that once annuity payments start, you can’t change your mind and withdraw your remaining savings—you’ll need to be satisfied with the monthly retirement payments.

To address this challenge, insurance companies have recently offered annuities and other types of protected retirement income products that will produce a monthly paycheck and allow you to withdraw remaining savings at some future date. They go by various names: variable annuities with withdrawal riders, guaranteed lifetime withdrawal benefits (GLWB), guaranteed minimum withdrawal benefits (GMWB), fixed income annuities (FIA), or simply “protected income.” Most of these products will guarantee a monthly benefit for life; they also credit your savings with investment credits. If your investment credits are favorable, your monthly income might increase.

Before you choose the right product for yourself, you’ll want to do your homework, learn about the features of these products, and work with a professional if that would make you feel more confident.

Variable Retirement Paychecks

Another way to generate retirement income is to invest your savings and implement a plan of systematic withdrawals that are designed to last the rest of your life. Common withdrawal methods will calculate an amount you should withdraw each year, and you divide by 12 to determine a monthly paycheck. If you decide to take this route and you’ve developed enough sources of protected income to allow you to sleep at night and not panic when the market crashes, you can consider a significant investment in stocks.

There are many viable methods for systematic withdrawals, and some of them can be quite complicated. My favorite is a dynamic method that calculates your annual withdrawal by applying a percentage to your remaining assets at the beginning of the year. This way, your withdrawal amount increases if your investment experience has been favorable and decreases if your investments lost money during previous year.

One viable dynamic withdrawal method is the IRS required minimum distribution (RMD), which develops a withdrawal percentage according to your age. The RMD doesn’t officially start until age 73, but you can use the same methodology at younger ages. (The RMD withdrawal method is part of the “Spend Safely in Retirement” method that I researched while at the Stanford Center on Longevity.)

There are other viable methods you can use to implement systematic withdrawals. You may want to work with a qualified retirement professional that you trust who can customize a strategy to meet your specific goals and objectives.

Many 401(k) Plans and IRAs Help You Set Up Retirement Income Generators

Recently, many 401(k) plans have added annuities or other types of protected retirement income products to their lineup. These plans typically shop around to offer cost-effective solutions, so that might be an easy way for you to generate protected income that’s fairly priced. Also, some large IRA providers offer cost-effective annuities and protected income, such as Fidelity, Schwab, and Vanguard.

If you want to implement systematic withdrawals for a variable retirement paycheck, many 401(k) plans and IRA providers offer installment payments that continue indefinitely until you change the amount (you usually have that flexibility). In addition, many 401(k) and IRA providers will pay you the required minimum distribution in the frequency you elect (monthly, quarterly, or annually).

Take the time to learn about generating retirement income from your savings so you can choose the methods that work best for you. Hopefully this will give you the peace of mind to relax and enjoy your retirement.

As an expert in retirement planning and financial management, I've spent years studying and advising individuals on how to navigate the complexities of retirement savings. My expertise extends to various retirement vehicles, including 401(k)s, IRAs, annuities, and systematic withdrawal strategies. I've worked closely with clients to develop tailored plans that address their specific goals and concerns, such as mitigating the risk of market volatility and ensuring sustainable income throughout retirement.

Now, let's break down the key concepts discussed in the article:

  1. 401(k), 403(b), 457, IRAs: These are all types of retirement savings accounts that individuals can contribute to, typically through their employers (in the case of 401(k), 403(b), 457) or independently (IRAs). Each has its own set of rules and tax advantages.

  2. Retirement Income Strategies: The article emphasizes the importance of creating a strategy for withdrawing funds from retirement savings to support one's lifestyle in retirement. It suggests generating monthly retirement income to last a lifetime while also addressing concerns such as market crashes and inflation.

  3. Protected Retirement Income: This refers to income streams that are not subject to market fluctuations and are designed to provide guaranteed payments for life. Examples include Social Security benefits, traditional pension plans, and certain types of annuities.

  4. Variable Retirement Paychecks: These are retirement income streams that may fluctuate based on investment performance, particularly if invested in the stock market. They offer potential for growth but also carry more risk compared to protected income.

  5. Annuities: Annuities are financial products offered by insurance companies that provide regular payments to the holder, typically in retirement. There are various types of annuities, including immediate annuities (such as SPIAs) and deferred annuities, each with its own features and considerations.

  6. Systematic Withdrawal Strategies: These involve withdrawing a set amount from retirement savings on a regular basis, often calculated to ensure the funds last throughout retirement. Methods such as the IRS required minimum distribution (RMD) are mentioned as examples.

  7. Retirement Income Generators: These are mechanisms, such as annuities or systematic withdrawal plans, used to generate income from retirement savings. The article discusses how many retirement plans and IRA providers offer options for setting up these income generators.

  8. Cost-Effective Solutions: The article suggests that many retirement plans and IRA providers offer cost-effective options for generating retirement income, including annuities and installment payments.

  9. Professional Guidance: While individuals can educate themselves about retirement income strategies, the article highlights the value of working with qualified professionals, such as financial advisors or retirement planners, to tailor a strategy to individual needs and circumstances.

Understanding these concepts is essential for anyone approaching retirement or already in retirement to make informed decisions about managing their savings and ensuring financial security in later years.

How Retirees Can Withdraw Money From Their 401(k) (2024)
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