How To Determine Your Safe Withdrawal Rate In Retirement

One of the ultimate goals in life is to ensure comfort well into those twilight years, to be able to do all the activities and afford all the luxuries that you could when you were working. You do not want to have to downgrade your living situation, or cut corners on your personal comfort just because you no longer have work income. The way to go about ensuring your continued financial comfort is to make certain that you have enough money to last and, to that end, one of your concerns upon retirement should be figuring out a safe withdrawal rate.Determine Your Safe Withdrawal Rate In Retirement

What exactly is a withdrawal rate, you might be wondering (and don’t worry if you do not know)? A withdrawal rate is simply the calculated amount of money you can spend each year, as a percentage of your assets, upon retirement. It is important for long term planning to calculate a “safe” withdrawal rate, i.e. a withdrawal rate that will not eat disproportionately into your savings.

Say you were to retire and then, in a moment of celebratory unthinking, booked an expensive months-long trip abroad, pushing your annual withdrawal rate to something like 10% of your savings. Spending like that is generally not sustainable and its impact on your portfolio needs to be understood. That’s why financial planners and wealth managers like to underline the importance of a safe withdrawal rate. But there are a number of (often conflicting) pieces of advice making the rounds on the Internet, the most popular of which is the infamous 4% rule.

As the rule goes, a benchmark safe withdrawal rate is 4%, which gives you a good shot of making your nest egg last at least 30 years (which, given that the age of retirement is around 65 usually, assumes a nice, long life). The 4% rule is based off a study done by a financial adviser named William Bengen back in 1994, and continues to carry clout.  The only real issue with Bengen’s 4% rule is that, as a buzz term and a maxim, some people might be tempted to read it as the rule of law, rather than a suggestion. Bengen’s 4% is a great place to start but, in actuality, you want to tailor your withdrawal rate to your unique situation.Safe Withdrawal Rate In Retirement

It is also a good idea to have a wealth manager in your corner, to start looking for the top investment companies to help you maneuver a volatile market, that way your withdrawal rate is less likely to face a crisis. A large part of determining your safe withdrawal rate reliably will be weathering declines in your investments or funds, so working with a wealth management company whose focus is capital preservation can be very beneficial.

Whether you choose to utilize Bengen’s 4% rule, or tailor your withdrawal rate to your particular financial situation, know that there are professional advisors out there to help guide you in this important decision. If there’s one takeaway here, it’s that, with something as consequential as your retirement nest egg, knowledge is quite literally power, so don’t be afraid to consult with the experts.