This week's answer comes from:

Cathy Pareto

Cathy Pareto is a Financial Advisor at Singer Xenos Wealth Management, a fee-based investment advisory firm with over $350 million assets under management.  Located in Coral Gables, Florida, she specializes in wealth management, investment planning, asset protection planning for physicians, retirement and estate planning. Cathy has a BBA in Finance from Florida International University and is in the final stages of completing the College for Financial Planning curriculum in preparation for the Certified Financial Planner (CFP) Certification Examination. She can be reached via email atCathy@SingerXenos.com or via thewww.SingerXenos.com website.

How do I best prioritize withdrawals from my portfolio?

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How do I best prioritize withdrawals from my portfolio?

from Peter

Q: I just retired about two weeks ago. I believe I have sufficient means to last 40 years plus at a 4% to 4.5% withdrawal, if that, per year. The figure I'm using is $1,100,000. My question is with a 70% / 30% stock/bond portfolio, what is the best and most conservative withdrawal method?

We have about two-thirds in taxable accounts, and the rest in 401(k)'s and IRA's. I have read so much and as usual there doesn't seem to be a consensus. The only thing most will agree on is to use taxable money first. I am 59 and my wife is 50.

A: While no two retirees have identical situations or objectives, here are some considerations and guidelines that might help you to prioritize your withdrawals.

As a rule of thumb, try to retain the assets with the best tax attributes. During your lifetime, you will be wealthier if you defer taxes on your tax qualified retirement plans as long as possible. Tax deferral is your friend. No need to pay Uncle Sam before you're supposed to. So, consider liquidating personal accounts first before you tap into the qualified money.

Most investors will want to liquidate assets during retirement in the following order:

• Personal taxable accounts including Non-qualified deferred compensation plans, and company stock accounts.
• Regular IRA’s, other qualified pension plans, and non-qualified annuities.
• Roth IRA’s

Your distribution of 4% to 5% per year is well within the safe range, assuming you have structured a diversified portfolio. Remember that the one thing retirees can control in their portfolio is how much they take out. You should allocate between five to eight years worth of distributions into fixed income. That way, you shouldn't be forced to tap into beaten down equities during a bear market.

Five to eight years worth of income should have you covered. For example, if your withdrawal rate is 4.5% of $1.1 million (or $49,500/year), a five to eight year income stash is roughly $247,500 and $396,000 respectively. Divide that figure by your total account value ($247,000/$1,100,000 = 22.4% or 396,000/1,100,000 = 36%). You should allocate between 22% and 35% to bonds in your portfolio.

Generally, you will wish to tap into your equity gains during good years and into fixed income during bad years.

Good luck!

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.