Withdrawing money after retirement
How much is enough to make your money last?By Doreen Friel
If you're like a lot of people trying to save for a more secure financial future, you have probably heard about saving and investing wisely for retirement. What you may not have heard a lot about, however, is how to wisely withdraw money from your retirement plan when the time comes.
The tricky part is estimating how much to withdraw from a retirement plan each year. Depending on the type of plan, the government requires most retirement savers to begin withdrawing a certain amount of money from their retirement plan accounts after reaching a certain age but most people want — or need — to start taking their money before that. And many want to withdraw more than the government requires them to each year. Unfortunately these cash-eager retirees risk running out of money in their lifetime.
Nest egg percentage
According to Barney Lee ("Americans All Over the Map on Retirement Drawdown Rates," October 13, 2011), 34 percent of people surveyed had no idea how much they will need to withdraw each year from their retirement plan accounts. And 15 percent planned on drawing down 10 percent or more of their savings each year. But is that too much to withdraw? According to the MetLife Mature Market Institute, financial professionals advise that individuals withdraw no more than 4 percent to 6 percent of their retirement savings each year in retirement to make their money last a lifetime.
In a MetLife Retirement Income IQ Survey, it was revealed that 56 percent of survey participants correctly responded that they could withdraw about $600 monthly from a $100,000 nest egg to last for 30 years in retirement. Alarmingly, the remaining 44 percent of respondents expressed the (incorrect) opinion that they could withdraw significantly higher amounts — anywhere from $800 to $1,200 per month.
If you don't think your money needs to last long, you may want to think again. According to the Transactions of the Society of Actuaries Annuity 2000 Table for Males and Females, males who reach age 65 have a 50 percent chance of living beyond 85. Females who reach age 65 have a 50 percent chance of living beyond 88. And for couples that both reach age 65, there's a 50 percent chance of one of them living beyond age 92.
How much to save, when to retire
There are lots of things that you can do to help make sure your money lasts. They include being savvy (before and after retirement) about food and housing costs as well as developing interests in inexpensive hobbies and choosing travel vacations that don't break the budget. But one of the most important steps you can take is to consult a financial professional — long before you retire. He or she can help you determine, based on your circumstances, how much money you may need to save for retirement, and at what age you may be able to afford retirement.
If retirement is just around the corner, a financial professional can help you decide whether delaying your retirement by a year or two or working part-time during retirement is wise. But, perhaps most importantly, a financial professional can help you decide how much to withdraw each year from your retirement plan — without taking too much.