Want to Sell Your Gold? Liquidity and Exit Planning With a Gold IRA
Buying gold can help you diversify your portfolio and insulate it from inflation and economic uncertainty. But not everyone wants to hold gold forever. Selling precious metals can make sense if you are overconcentrated in this asset class or are ready to live off your nest egg.
Savvy gold investors establish when they will sell assets instead of letting headlines dictate their decisions. That’s why exit planning with a gold IRA can go a long way in being able to live off of your assets without taking out too much money or being overconcentrated in gold.
These are some of the best practices that can help you better understand liquidity and exit planning.
Calculate how much you need to withdraw from your gold IRA each month
Many people build their nest eggs so they can pull money out of them in the future to cover living expenses. It’s a good backup plan to receiving Social Security benefits, which may not be enough to cover your living expenses.
Knowing how much you will eventually need to withdraw from your gold IRA comes down to knowing your Social Security benefits and monthly living expenses. If you get $4,000 per month in Social Security and have $5,500 in monthly living expenses, you will have to withdraw $1,500 per month from your retirement accounts.
That number may go higher if you want to take vacations, help your children with a down payment when they are ready to purchase a home or use additional funds for any other reason. In this example, withdrawing $1,500 per month equates to $18,000 per year.
You don't have to rely exclusively on a gold IRA if you have other retirement accounts or a taxable brokerage account. However, knowing how much you need to withdraw from your collective investment accounts each month is a good starting point for savvy decision-making.
Establish your optimal portfolio allocation
A common rule of thumb is to allocate no more than 5% to 10% of your portfolio to alternative assets, including gold and other precious metals. While each investor has different preferences, using the 10% portfolio allocation as an example can help investors assess how much gold to sell from their gold IRAs.
For instance, if you have $100,000 in a gold IRA and $400,000 in stocks, you have a 20% concentration in gold. That is too high based on the 10% threshold, so selling gold at a faster rate than stocks may be a wise decision. However, if you have $50,000 in a gold IRA and $1 million in stocks, trimming your equities position makes more sense.
Investors should review their asset allocations each quarter when they are living off of their nest eggs. You don’t have to look at your portfolio diversification as often when you are working, but it becomes more important to get the allocation right during retirement.
The proper allocation for your portfolio depends on your risk tolerance. People with high risk tolerances gravitate toward stocks, while low-risk investors prioritize bonds and fixed-income assets. Gold is a bit of a middle ground. It’s less risky than an equity-heavy focus since precious metals are uncorrelated with the stock market. However, they are riskier than fixed-income securities since gold prices can be volatile at times.
Factor in taxes when withdrawing from a gold IRA
Knowing your preferred asset allocation and how much you have to withdraw each month gives you the basics for a solid financial plan. The last part of the process is considering how taxes will impact your withdrawal strategy.
If all of your IRAs are traditional and were funded with pre-tax dollars, then your withdrawals will be treated as ordinary income. Withdrawing all of the funds from your traditional retirement plans in one shot will result in a lofty tax bill, and that’s why most retirees spread out their withdrawals.
However, there is also a downside to focusing on Roth IRA withdrawals and your taxable brokerage account instead of addressing your traditional retirement plans. Any traditional IRAs and similar retirement plans are subject to required minimum distributions, or RMDs, upon turning 75, assuming you were born in 1960 or later. Individuals who were born between 1951 and 1959 must take out RMDs beginning when they turn 73.
RMDs generally increase over time, and a higher withdrawal rate will result in more taxable income. If you gradually withdraw from traditional retirement plans before RMDs start, you will reduce the tax impact in your later years.
Retirees report lower ordinary income, so they won’t be in high tax brackets unless they withdraw a lot of money. Social Security can push you into a higher tax bracket, but not all of your benefits are eligible for taxation.
It's better to plan than get caught off guard
Constructing an exit plan for your gold IRA that aligns with your other investment and retirement accounts will take time. But all of that prep will give you a solid financial foundation and clarity for your next steps when it is time to retire and live off of your nest egg.
Most of the hard work comes at the beginning of financial planning. Once you review your accounts and assess how much you need to cover your living expenses, it’s just a matter of staying the course and monitoring your asset allocations.
This brainstorming also helps investors gauge if their current asset allocations are sufficient for their retirement goals. Some people may feel the need to accumulate more gold because they have neglected precious metals for several years. Other people may want to build up their equity and fixed-income positions, depending on their risk tolerance. Either way, these tips can help you develop an exit plan so you can enjoy a financially healthy retirement.
The golden road to wealth preservation
