How much can you annually withdraw from your retirement savings with the least risk of running out of money? Not knowing what the future holds, that is a tough question to answer. However, studies published in the Journal of Financial Planning offer some guidance.
The studies generally suggest two alternate withdrawal methods:
- One method is to initially withdraw about 4 percent from a diversified portfolio and then annually increase that amount to keep pace with inflation.
- A second method is to withdraw a fixed 5 percent each year with a ceiling and floor on the amount you withdraw. The actual amount will depend on your investment returns.
In deciding how much you can withdraw from your savings, you must also consider your other sources of income, how much money you have, how it is invested, and your life expectancy. Other factors include how much you want to leave your heirs, how much life insurance you have, and whether the majority of your money is in taxable accounts or retirement plans.
Retirement income calculators available online or in money management software packages can help you make decisions about withdrawal rates based on your specific streams of income, investments and other data.