It’s one of the most-asked questions of financial professionals: “If I want my nest egg to support me for the rest of my life, how much of it can I safely withdraw each year?” It’s not an easy question to answer, as it depends on so many factors. However, here are some things you can consider.
Figure out how long you might live in retirement
You can’t know for certain, of course, but you can get an idea. Consider your health and look at some online calculators. If these tools illustrate anything, it’s that you probably need your savings to support you into your early 90s, just to be on the safe side.
Come up with an anticipated withdrawal rate
Once you have an idea how many years you may be relying on your nest egg, you should think about how much money you will be spending in retirement. This is your withdrawal rate. Financial advisors have sophisticated tools to do this, but you can get an idea by looking at your expenses. Don’t forget to factor in inflation.
Allow for adjustments
Finally, understand that you will likely have to make adjustments to both your life expectancy and withdrawal rate over time. The former will change based on your health, and the latter will change based on your spending and the performance of your nest egg. A market crash, for example, can derail the best of plans.
Together, these steps will help you develop a strategy to generate the income you need for a successful retirement.