Monday, June 05, 2006

Do You Know What To Do With Your Money When Retirement Comes?

All this talk about saving for retirement, but no one really talks about after you've saved your money, then what? Do you take out one big lump sum? Do you take out a couple percent? This article Know when to break the retirement investing rules,, has some specifics on what to do...First two are known, but the last one struck me as most interesting...First two being:
1: You'll need 60% to 80% of pre-retirement income to keep your current standard of living once you retire.
2: Tap regular accounts before tax-deferred ones in retirement.
Here's the last suggestion...
3: Withdraw 3% to 4% of your portfolio a year, then adjust upward for inflation.
I never really knew the specifics of how much to take out...A specific amount puts the other suggestions into perspective.


LAMoneyGuy said...

4% is generally considered a pretty reasonable and conservative rate. But 3% is even more conservative, which I'm all for.

I think 60% of pre-retirement income is grossly underestimated for most. I think a more important was to think of it is the percentage of your pre-retirment exenses you will need. If you are living beyond your means, you will need much more than 60% of pre-retirement income. If you are saving 50% of your income, you will need less than 60%.

Some of your expenses will go away (commuting, etc) but most will not, and many new ones will appear (golf, travel, hobbies).

FMF said...

It used to be 5% with 4% being conservative. I guess we're all getting more and more conservative as we get older. ;-)

I agree to set retirement based on what you think your expenses will be. For us, we live on much less than 80% of our income, so our true expenses, even if they are the same in retirement, will be 80% or less of our current income.