How much can I safely withdraw each year?
To make sure your money lasts throughout retirement, use a conservative withdrawal strategy that assumes there will be uncertain markets along the way.
Naturally, you worry that you’ll go through your retirement money too quickly—especially if the market has left you with a smaller portfolio.
We believe a good rule of thumb is to withdraw 4% of your portfolio in the first year of retirement and increase that dollar amount every year by the rate of inflation. That way, we estimate a conservative-to-moderate portfolio has a 90% chance of lasting for 30 years—even with ups and downs in the market.
- Withdraw 4% of your portfolio’s value the first year.
- Increase your withdrawal amount each year to keep pace with inflation.
- During adverse market conditions, try to limit your withdrawals to covering essential expenses only—or at least forgo the annual inflation increase.
Here's an example.
|Total value of your portfolio||$1,000,000 x0.04|
|Next year's withdrawal|
Adjustment for 2% annual inflation
|Next year's withdrawal||$40,800|
Sources: "Write Your Own Retirement Check," by Rande Spiegelman, Updated March 4, 2011, and "Can You Still Retire?" by Rande Spiegelman, updated October 20, 2010.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The types of securities mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data contained here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided, including statistical simulations, are provided for illustrative purposes only and are not intended to imply future results you should expect to see. Past performance is no guarantee of future results.