I’m a JPMorgan advisor: Why so many seniors are withdrawing retirement funds too early

Try as best you can to plan your ideal retirement, life is full of surprises. The reality is that most Americans – 58% – retire earlier than expected, with the average retirement age being 62. Transamerica Research.

This often results in senior citizens or people in their late 50s and early 60s withdrawing too much money from their accounts retirement Eat very quickly.

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“It’s exciting to tap into your hard-earned retirement savings for the first time. However, you need to be smart about when and how you do it,” said Connor Pastor, vice president and banker at . JP Morgan Private Bank in Chicago.

GOBankingRates spoke further with Pastor about why many seniors are using their retirement funds early, And how can they better manage their withdrawals.

Why do people withdraw money from their retirement funds early?

In many cases, individuals start withdrawing money from their retirement funds when they have qualifying reasons for early withdrawal.

“The two most common reasons workers withdraw from their retirement accounts are unemployment and medical hardship,” Pastor said.

Due to job loss at the end of their career, many employees become exhausted Deciding to retire earlier than planned. Some people may take advantage of the “Rule of 55” or the “Rule of Age 55.” This allows penalty-free retirement plan withdrawals from the employer plan if you leave that particular job in the year you turn 55 or older, before the normal 59 ½ age at which you can make penalty-free withdrawals from the retirement account, he explained.

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Still, “just because you can access your retirement funds doesn’t mean you should. In general, the longer you can wait to make withdrawals, the better your results will be,” Pastor said.

Medical difficulties are also a major reason for this tapping retirement funds too early. Here too, just because you may be eligible for penalty-free withdrawals doesn’t mean you should do so.

“You can avoid the 10% early withdrawal penalty on the amount of qualified medical expenses greater than 7.5% of your adjusted gross income. However, it is important to remember that repayment is not allowed,” Pastor explained. “After all, contributing significant assets to a retirement account is much harder than taking those assets out.”

Optimizing Retirement Withdrawals

Although you can’t always plan exactly when you’ll retire, that doesn’t mean retirement planning is by any means futile. Instead, it is important to build some flexibility and be able to adapt to changing circumstances.

Even if you are not retiring early, many seniors withdraw retirement funds too early because They are not optimizing different financial buckets. It may seem like the first place to look for income in retirement is your account like a 401(k) plan or IRA, but that’s not always the case.

“Since retirement accounts are tax-advantaged, offering tax-deferred growth for traditional accounts or tax-free withdrawals for Roth accounts, the best thing retirement account owners can do to grow their wealth in retirement is to remain invested in high-quality assets within their retirement accounts for as long as possible,” Pastor said.

“Time is your friend when it comes to investing and the longer you can stay invested without paying income tax or capital gains tax, the better off you will be,” he said.

Instead, even if you can make penalty-free retirement withdrawals, consider whether it is appropriate to make withdrawals from other sources, such as taxable brokerage accounts. or maybe working part time And it’s worth taking advantage of saving for a few years so you can combine your retirement accounts enough to spend the rest of your retirement comfortably.

“A holistic financial planning conversation with a tax or financial professional is the best way to determine whether it is appropriate to withdraw money from taxable assets versus retirement funds to cover your living expenses and meet your financial goals,” Pastor said. “Remember, the devil is in the details. During financial planning conversations, it’s important to have copies of all of your account statements – retirement, savings and brokerage accounts – present.”

From there, you can determine a strategy that supports your current and future lifestyle, which often means delaying withdrawals from retirement accounts.

“It’s important for retirement account owners to think of their retirement accounts as engines of growing wealth,” Pastor explained. “The bigger the engine, the faster the money will grow. Tap your retirement accounts sparingly and be careful about which bucket to pull money from when planning your retirement.”

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