Draw Down Retirement Funds Carefully
One of the toughest decisions you’ll make when retiring is deciding how much to withdraw annually from your retirement investments. Take out too much and you could spend your later retirement years relying on the help of relatives or enduring a much lower standard of living. Your withdrawal amount can be calculated based on your life expectancy, expected long-term rate of return, expected inflation rate, and how much principal you want remaining at the end of your life. Guess wrong on any of those variables, and you risk depleting your assets too quickly. Yet, these are difficult to predict over such a long time. To help ensure you don’t run out of retirement assets, consider these strategies:
Use conservative estimates in your draw down calculations. Add a few years to your life expectancy, reduce your expected return a little, and increase your inflation expectations. That will result in a lower withdrawal amount, but it will also help ensure that your funds don’t run out. Take a careful look at any answer that indicates you can take out much more than 3% to 5% of your balance each year, which is a reasonable withdrawal amount if you want your funds to last for several decades.
Review your calculations every couple of years. This is especially important during your early retirement years. If you find you’re depleting your assets too rapidly, you may be able to go back to work on at least a part-time basis. If you find that out late in life, working may not be an option.
Place three to five years' worth of living expenses in short-term investments. That way, if there is a severe market downturn, you won’t have to touch your stock investments for at least three to five years, giving them time to recover.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.