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If you’re contemplating retirement, one important question is sure to arise: How much should I withdraw annually from my retirement funds? The answer to this query is more than academic. Draw down too much, and you could deplete your resources early and be forced back to work. Withdraw too little and you may sacrifice needlessly, pinching pennies when you could be enjoying a robust retirement. Your particular withdrawal rate will depend on a number of variables. You should factor in monthly pension checks; when and how much you’ll receive from social security; the size of your accumulated nest egg in 401(k) plans, IRAs and other accounts; the allocation of your investments and expected rates of return; planned expenses during retirement; life expectancy; even contingency savings for unexpected costs. The withdrawal rate is just one piece of a much larger picture. In general, however, many retirement planners recommend an annual withdrawal rate ranging from a conservative 3% to a more liberal 6%. Some studies have shown that it’s best to start with a more conservative withdrawal rate, which can then be adjusted by an annual inflation factor. Again, many factors play into this decision. If you have a generous pension, especially one that’s indexed to inflation (an increasingly rare scenario), you may be able to withdraw 5% of your savings every year and still sustain a comfortable lifestyle well into your nineties. In addition, if you’ve paid off your mortgage and other significant debt by the time you retire, you’ll have more flexibility when it comes to withdrawals. On the other hand, if your savings are limited or you’ll be relying heavily on social security, you may do well to trim the withdrawal percentage downward. Here’s another possibility: Set up an annuity in lieu of a pension. Generally speaking, immediate annuities can provide fixed lifetime payments in exchange for a lump-sum investment. Some policies are indexed to inflation; some vary with the market. (Remember, however, to exercise caution when considering this type of investment. Scams abound in this area.) The key is to take a realistic look at your income, expenses, and other factors, then track your cash flow and adjust the withdrawal percentage as needed during retirement. Seeking professional advice can also help when analyzing retirement assumptions and plans. If you need help, please call. Securities offered through 1st Global Capital Corp., Member FINRA, SIPC Investment advisory services offered through 1st Global Advisors, Inc. Insurance services offered through 1st Global Insurance Services “Financial Planning Tips” are published monthly to provide useful financial information. Return to this site every month for helpful suggestions on how to reach your financial goals. The information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. If you would like more information on anything in “Financial Planning Tips,” or if you’d like to be on our mailing list to receive other financial, tax, or business information from time to time, please contact our office. We’re here to help.

Tags: Finance tips, Financial planning, How to, Save money

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