““Don’t touch the principle. Spend the income – if you’re smart you’ll put what you don’t need onto auto reinvest””
once you hit 72 now, the government will decide how much of your IRA/401K you MUST take out each year. By age 75, it is approaching 4% a year.
That is determined by the value on Dec 31 for the coming year. If you look at this year, if you were in all stocks in the index, you’re down by 20% likely, but you MUST take out money based upon that Dec 31 value this year. And pay taxes on it.
Now, maybe you sold stock on Jan 2 and put the money into a MMF to fund the year’s withdrawal. Many for the past couple years likely decided to wait until Dec to sell, seeing that the usual year had stock rises of 11% a year year after year.
Of course, if you had other assets other than stocks in your IRA, you could sell some bonds or REITs and likely not take a 20% decrease. Or if you had SP500 that pays 2% dividend, you could use that for half your yearly withdrawal and if you had some corp bonds paying 3%, or junk bonds paying 5%, you might not be so bad off.
For assets outside an IRA, if you get dividends and interest you’ll be paying income tax on them no matter whether you ‘re-invest them’ or not. You’re choice.
Now another ‘plan’ of withdrawal has always been to take a fixed percentage of total assets each year - about 5%. So your income will rise and fall with the market. Some years more, some less. It’s not ‘inflation’ adjusted. You can do it monthly so if the market is going down, you take LESS. If the market and your portfolio is down 20 or 50%, you TAKE 20 OR 50% LESS.
that, as opposed to 4% inflation adjusted from the day/year you retire.
Of course, once you hit now 72, Uncle Sam will make you take over 3% annually from tax deferred savings, and by age 80, up to 5%. 10% by age 90 should you live that long.