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, your life expectancy, rate of return, and inflation rate are difficult to predict over such a long time. To help ensure you don't run out of retirement, consider these strategies:
- Use conservative estimates in your drawdown 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. That doesn't mean you can't take out more, but you should be very confident of your assumptions before doing so.
- 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 quickly, you may be able to go back to work on at least a part-time basis. If you find out late in life that you're running out of assets, that may not be an option.
- Place three to five years 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.
Please call if you'd like help deciding how much to draw down from your retirement assets.