Retirement Budget

• Before you retire and start drawing money from your IRA, you should first take the time to create a detailed budget for your retirement expenses. If you already have a household budget in place, you can use those figures as the basis for your retirement planning. Keep in mind, however, that some expenses might go down, but other ones might go up. If you plan to pay your home off before you retire, you can eliminate that large expense. But unless your employer provides fully funded health care benefits, you need to figure in the cost of an individual policy or a Medicare supplement if you are 65 or older.
  
  

Income Sources

• If you expect to have other sources of income when you retire, you need to include those figures in your retirement planning. If you have access to a company pension or an annuity, include those figures in your income, since that money can reduce the amount you need to pull from your IRA. The same is true of Social Security if you are eligible for those benefits. Keep in mind, however, that delaying taking Social Security can give you a bigger payment down the line. You will need to weigh the benefits of those higher Social Security benefits against the need for current income.
  
  

IRA Withdrawals

• After you know how much you expect to spend each month in retirement, and how much you can expect from other sources, you can use that information to determine how much you need to generate from your IRA nest egg. It is best to use a conservative withdrawal strategy, taking out no more than 4 to 5 percent initially. If you have to take out more than 4 to 5 percent to meet your retirement needs, you might not be ready to retire. If this is the case you should consider working a few more years or seeking out a consultant or freelance position that uses your skills and expertise.
  
  

Evaluate Performance

• One argument against withdrawing a set amount of money from your IRA each year is that doing so could deplete your nest egg too soon. If your investments have a bad year, reducing the amount you withdraw can give your funds time to recover. If you continue to withdraw the same amount as you did before, you run the risk that your future earnings will not be able to make up for the loss of that money. Cutting back on the amount you withdraw from your IRA might require sacrifices, including reducing your discretionary spending or even taking a part-time job until your nest egg has a chance to recover and start growing again.