Too Much, Too Soon

When your last day of work arrives — and with it your final paycheck — will you know how much of your hard-earned retirement assets you can withdraw without running out of money?

In a recent survey, only about one in 10 prospective retirees knew what percentage of retirement assets could be safely withdrawn each year without a high risk of depleting retirement savings during their lifetimes. More than one-third of survey takers mistakenly thought they could safely withdraw 14 percent each year.¹

Unless you understand how to manage the systematic withdrawal of your retirement assets, you may run the risk of taking too much and running out of money during your lifetime, or being too cautious and living on an unnecessarily low income.

It's All in the Variables

A systematic withdrawal program can help you schedule regular income from one or more accounts that continue to pursue investment returns. The exact amount that you will be able to withdraw each month or year will require that you strike a balance between personal goals and certain variables.

Investment performance — When you withdraw more each year than the account earns, a portion of your withdrawal will come from principal. If this continues, a greater percentage of your withdrawal will come from principal as time passes. This may or may not be a problem, depending on your goals and life expectancy.

When you limit withdrawals to what the account earns (minus fees and expenses) or even less, withdrawals could continue indefinitely, in theory. This is something to consider if you are intending to leave a legacy for your heirs.

Inflation — If you adjust your withdrawals each year to keep pace with inflation, it will typically be at the expense of other variables, such as a shorter account life or a lower starting income.

Before you begin systematically taking money from your investments in retirement, it's important to make a careful calculation, taking stock of your personal financial circumstances and goals. This may help ensure that your money lasts as long as you need it.

1) Investor's Business Daily, May 18, 2006