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Understanding Retirement Income

For those in retirement, we offer advice on how much you can safely withdraw each month. Learn more about what you can expect when using your Betterment account for income in retirement.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: September 1, 2018


TABLE OF CONTENTS

Overview

Income


Income Advice on Retirement Goals at Betterment

The “Monthly Safe Withdrawal” recommended amount on the Advice Tab for retirement income goals is based on our retirement income model that assumes you update your withdrawal amount and allocation at least annually according to our recommendations, and that your age and lifetime horizon are correct. The recommendations will vary based on market performance, your cashflows and allocation changes. If you follow this advice, updating at least annually, we estimate that there is a 4% or less chance of depleting your portfolio before the end of your designated time horizon.

This is based on our research which uses Monte Carlo simulation. This means that test results are hypothetical and based on a specific set of assumptions. Withdrawal amounts are not guaranteed income. You should consider all of your sources of income both guaranteed and variable, as well as your expected cost of living, to make a cohesive income plan.

You can read more in our article about retirement income.

How much do Betterment’s retirement income features cost?

Retirement Income is a service that comes at no additional cost for our qualified retired customers. Customers will simply need to set their goal to be a “Retirement Income” goal and set their withdrawal amount accordingly. You can choose the goal type on your advice page. This process is very similar to when you create auto-deposits in your account.

Learn more about Betterment’s pricing

Can I get income from multiple accounts?

Yes-if you plan to draw income from both a Traditional IRA and a Roth account, for example, you will need to set up an automatic withdrawal from each one.

How do I add a retirement income goal?

To see our Safe Withdrawal advice, you first need to have a Retirement Income goal. Once created, use the tools on the goal’s Plan to see recommended safe withdrawal advice even before you fund your account.

To add a retirement income goal, first click “Add New” from the menu after logging in from a web browser. Or, from the mobile app, log in and click “Add goal/account.”

After you choose your account type (individual, joint, trust or IRA), you will choose the “Retirement” option and pick “No, I’m retired and looking to make regular withdrawals.”

I’d like to just “live off the gains” and not use my principal—is that possible?

In today’s low-rate environment, this is not possible unless you are willing to significantly reduce your withdrawals and therefore standard of living. “Yield chasing”, or seeking other sources of higher interest beyond CDs and risk-free treasuries, can result in unwanted risk concentrations in high-yield bonds and high dividend stocks.

We recommend a total-return investing strategy, which manages risk through broad diversification, and delivers income through the dividends and capital appreciation of the underlying portfolio.

Can you send me my Required Minimum Distributions (RMDs)?

We calculate RMDs for Traditional IRAs annually, and show the amount on your tax statement at the end of January. You can take this amount and set up automatic withdrawals at the frequency you like within Transfer, or take the withdrawal manually.

Can I withhold taxes from my withdrawals?

Tax withholding is the percentage of income tax that you elect to have withheld from your IRA distribution and sent directly to the IRS in an effort to mitigate your future tax liability.

The amount you withhold, if any, may differ from your ultimate tax liability. If your withholding ends up being too much, you will be due a refund when you file your tax return. If your withholding ends up being too little, you will owe an additional amount to the government when you file your tax return.

When you initiate a distribution from your IRA, you will automatically be prompted to choose a federal tax withholding amount. All customers will be defaulted to 10% withholding, but can select 0% or any other value between 10% and 100%.

What if I want to leave investments to my heirs?

Our advice model does not currently account for leaving assets to your heirs, but we plan to add this in the future.  For now, you can use the graphing capabilities on the Advice tab to estimate how much will be left at the end of the horizon given the withdrawals you enter.

That being said, can also add beneficiaries to any of your Betterment accounts, which would supersede any will or trust.

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