Computerized simulations conducted by investment firms and academic researchers have shown that a retiree's money lasts longer when assets are withdrawn in a tax-efficient manner:
- Generally, this means tapping taxable accounts (i.e., investments other than Traditional IRAs and tax-deferred plans for self-employed persons such as SEPs and Keoghs) first, since they were made with after-tax dollars and taxes have already been paid on investment earnings.
- Another good initial source of money, for initial retirement asset withdrawals, is tax-free assets, such as municipal bonds or bond funds, where no federal and/or state income tax is due.
- If possible, retirees should wait until age 73 or 75 (depending on year of birth) to tap their tax-deferred accounts. This is the age when required minimum withdrawals must be made from most retirement accounts (exception: Roth IRAs, where withdrawals are tax-free if certain qualifications are met).
- If tax-deferred money is needed before age 73 or 75 (depending on year of birth), first tap tax-deferred accounts that were made with after-tax dollar contributions, such as fixed or variable annuities and non-deductible Traditional IRAs. Then tap before-tax dollar savings plans, such as SEP or Keogh plans, if needed.
- Withdrawals from Roth IRAs should be made last because they have no minimum withdrawal age and earnings grow tax-free. Also, if money in a Roth IRA account is not spent during an account owner's lifetime, it can be bequeathed to his or her heirs.
Another way to stretch retirement savings is to continue work, full or part-time, after retirement, either in farming or some other type of occupation. Semi-retirement (e.g., working the equivalent of 2 or 3 days a week after one begins to collect Social Security) reduces the amount of money that needs to be withdrawn from investments to supplement a retired farmer's fixed sources of income (e.g., Social Security and rent). This has the effect of stretching retirement assets, which is a tremendous advantage, especially for those who are retiring with limited funds.
The only thing to be aware of, when working during retirement, is the earnings limit for Social Security benefits, which affects those who claim benefits between age 62 and their full retirement age or FRA (e.g., age 66 for workers born between 1943 and 1954, 66 plus monthly increments for workers born from 1955 through 1959, and age 67 for workers born in 1960 and later). In 2025, the earnings limit is $23,400 per year ($1,950 per month). Workers who earn more than this amount will have $1 in benefit withheld for every $2 in earnings above the limit. Once a worker reaches FRA, they can earn any amount without affecting their Social Security benefit amount.