How Much Money Can I Withdraw from My IRA Monthly?

Retirement savings requires careful planning.

Retirement savings requires careful planning.

An IRA encourages you to save for retirement by providing tax advantages such as the possibility to contribute after-tax dollars and defer taxes on your interest. You can withdraw as much money as you want, whenever you want — but how much you get monthly will depend on your investment returns and how you access the funds.

Cash Withdrawals

If maintaining control and liquidity is your style, you’ll want to leave your money invested in the IRA and make regular cash withdrawals. How much you can get generallys depend on your investment return and how long you want the money to last. If you had $250,000 in your IRA and wanted to take out $2,000 a month, assuming you could earn an average annual interest rate of 4.0 percent, your funds would be depleted in 13 years and 5 months. On the other hand, withdrawals of $1,250 a month would last you 27 years. This method allows you change your income as you see fit and also make lump-sum withdrawals in an emergency or for unexpected expenses such as a vacation or a new TV.

Life Annuity

If you’re more conservative fiscally and prefer to make sure you receive a check every month as long as you’re still alive, a life annuity might be the way to go. You give a lump sum of cash to an insurance company and, in return, they promise to pay you income for life. Income amounts are typically higher than managing your own money because your family does not get anything back if you die prematurely. The amount of money you get is based on your age and interest rates at the time. If you were age 65, based on January 2013, figures your $250,000 IRA could get you a life annuity of $1,282 a month. If you bought it at age 70 instead, your income would be $1,457 a month.

Term-Certain Annuity

Different than the life annuity, the term-certain annuity pays a set income amount for a predetermined period of time regardless of whether you die before the end of the payment period. If you die prematurely, the payments continue to your beneficiary until the end of the payment term. You select the length of time the income will last. If you are age 65 and want an income to age 85, you can select a 20-year term. If you bought a 20-year term-certain annuity with your $250,000 IRA that offered a 3.0 percent interest rate, your income would be $1,381.43 a month. That amount does not depend on your age because the income is guaranteed no matter if you are still alive.

Annuity Considerations

The advantage of annuities is that your income is guaranteed. You don’t have to worry about managing your investments or keeptime track of the stock market. Life annuities make sure that you get money as long as you live, which is handy for paying your day to day expenses that keep coming every month, like utilities and food. The disadvantage of an annuity is that you are locked in at the interest rates in effect when you bought it. You have no liquidity to take advantage of new interest rates when they go up.


About the Author

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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