Withdrawal Order:
The Planner funds your expenses based upon an Expense Hierarchy. When the income coming into the plan is not enough to fund the expenses going out, the Planner implements a default withdrawal order. That is, the Planner will draw down from savings in the following order:
Taxable Savings
Tax-Deferred Accounts
Roth Accounts
HSAs
Within each category, the growth rate on accounts will influence the order of withdrawals. Accounts with the lowest growth rate will be used first, allowing accounts with higher growth rates to continue to grow for the longest period of time. If there are multiple accounts with the same RoR in a category Planner will draw down alphabetically. To adjust this simply update the account name and enter something like a 1 in the beginning of title. For example "1 Trad IRA".
The Withdrawal Order includes RMDs and the Planner models RMDs in accordance with IRS protocols. That is, the specific RMD amount is determined by dividing the prior year-end account balances by a life expectancy factor as determined by the IRS and withdrawn. If your RMDs are in excess of your expenses, they will be added to your Excess Income.
It's important to note that your accounts likely have a variety of tax treatments. As a result, when the planner withdraws from a particular account, your tax modeling will be impacted. Excluding accounts from the withdrawal strategy, or entering one-time expenses, disbursements, and transfers will also impact your tax modeling.
Because the Planner includes your taxes in your expense modeling, any changes to your tax modeling will impact your expenses. It is an inevitable circular process you'll want to be aware of as you work on your plan and make adjustments.
Note: If you are seeing savings drawdowns on the Lifetime Retirement Projection charts beyond your modeled expenses this is because estimated taxes are based on the income of the year prior and actual tax liability of the current year is reconciled in January of the following year. If you don't have enough income in January to cover one-time expenses and estimated taxes applied at the beginning of the year the tool will borrow from your savings in January (savings drawdown) and replenish your savings with excess income saved throughout the year. You can see this in the Insights > Surplus-Gap Chart below.
Excluding accounts from the withdrawal strategy
You have the ability to override the Planner's default order of withdrawals by excluding accounts from your withdrawal strategy.
If you excluding an account from your withdrawal strategy, the account will NOT be used for the following:
In calculations that use liquid retirement savings to generate income estimates
In automated withdrawal strategies to cover expenses
In Required Minimum Distribution (RMD) estimates
In the Roth Conversion Explorer
When attempting to pay for a given expense. Even if the account is fully funded and there are no other accounts available to pay an expense, the account will not be tapped and lifetime debt will instead be modeled.
IMPORTANT: Excluding an account from your withdrawal strategy does NOT exclude it from manual withdrawals, only from our automatic withdrawals based on the Expense Hierarchy. Using My Plan > Money Flows to direct money out of an excluded account not only works but allows for much more control over your Plan. See this article for more detail.
How do I exclude an account from my withdrawal strategy?
Use the pencil icon to edit an account and press "Yes" when asked "Exclude this account from your withdrawal strategies?"
How do I model manual withdrawals?
There may be scenarios when you want to manipulate your cash flow to influence the transfer and withdrawal of assets. Manual withdrawals can be used to model scenarios, including:
Intentional 401k/IRA withdrawals at any age
Deferred salary withdrawals
Inherited IRA Required Minimum Distributions (RMDS)
529 withdrawals
HSA withdrawals
Transferring money from one account to another account
Transferring money after the death of the first spouse
Transferring money to pay down debt and mortgages
Modeling tax-deductible disbursements
Step 1; Head over to the Money Flows section of My Plan
Step 2 Open the Transfers section
Step 3: Press on "Add a Transfer +"
Step 4: Select the account for the withdrawal
Step 5: Select the account/selection for the deposit
Step 6: Enter the amount in future dollars
Step 7: Decide if this is a one-time or annual transfer
Step 8: Enter when the transaction will take place
Step 9: Enter notes (optional)
Step 10: Press Save when complete
See our Video Tutorials for more detail on customizing your own withdrawal strategy.
How do I change the order of accounts for RMDs?
The growth rate on accounts will influence the order of drawdown. Accounts with the lowest growth rate will be used first, allowing accounts with higher growth rates to continue to grow for the longest period of time. You may consider making slight changes to the growth inputs, such as 7.9% instead of 8%, to help influence the order of withdrawals.
The order tax-advantaged accounts are entered in the Savings and Assets section will influence the accounts' order to be drawn down for RMDs.
You may consider re-entering your accounts in the tax-advantaged section in the order you would like for them to be used for RMDs. Entering the accounts in this way will only determine the order RMDs drawdowns.
To view withdrawal details per account, PlannerPlus members can go to Insights > Savings and scroll to the "Withdrawals" chart.
