What Retirees Should Know About Managing Withdrawals During Market Volatility

It’s been a raucous past few weeks for stocks. After rallying in April and May, the market reminded everyone in June that nothing lasts forever. Stocks stumble, too. And the current one may well drag on, evolving into a full-blown correction.

And this raises the question: What do retirees making withdrawals from their retirement accounts do in situations like the current one, which could worsen before it gets better? Here are three important things to know about taking distributions when the market is volatile.

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You aren’t required to do it all in one shot

Plenty of people do so. But you’re not required to make withdrawals — and in particular your required minimum distributions (or RMDs) from retirement accounts — in one transaction. You can space them out over time. You only need to withdraw your total RMD amount from your retirement accounts before the end of the calendar year.

Sure, this may mean you still end up selling some of your holdings at prices lower than what you might like (assuming you need to sell assets to fund cash withdrawals). You can leave a sizable chunk of your retirement savings in the market, giving it a chance to recover.

They don’t need to be taken in cash

That being said, if you’re specifically concerned about completing your IRS-required minimum distribution from a non-Roth IRA before year’s end, you don’t necessarily need to sell any of your holdings at all to do so. You can also take what are called in-kind distributions, where your retirement account’s custodian simply moves stocks, funds, or bonds out of an IRA and into an ordinary brokerage account without forcing you to sell anything at a disappointing price.

Just know that this transfer may or may not fully satisfy any given year’s calculated RMD. Your broker won’t know the actual value of an in-kind distribution until it’s completed, since the underlying prices of these assets are constantly changing. That’s why you might want to make a point of withdrawing just a little more than you might think you need to fully meet your required minimum distribution, just to make sure you do.

The one downside of this option? If they’re done when the market’s down, you’re still removing more relative value from a tax-sheltered account, meaning you’re leaving less in it to continue growing tax-free.

In-kind distributions won’t be of much help if you need to convert investments into cash to live on. On that note…

Cash withdrawals should be planned months in advance

Finally, although it’s a little too late to do much about it this time around, the past few weeks have been a reminder of just how quickly things can and do change for the stock market. That’s why you should start planning retirement withdrawals months before you actually intend to make them. This will give you a wide window of opportunity to make any exits you need to fully fund a distribution if you intend to take it in cash.

Of course, unless you just desperately need the money right now, you’ve also still got the entire second half of the year to hold out for better exit prices of your current holdings.

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