Q: How much money can we withdraw from our accounts and be sure our money will last the rest of our lives?
By Ric Edelman
Question: I’m in my mid-60s and getting close to retirement. We believe our investments are well diversified. How much money can we withdraw from our accounts and be sure our money will last the rest of our lives?
Ric: That’s an easy question to ask, but a hard one to answer. It depends on how long you’ll need that money. If you’re married and both in your 60s, one of you can be expected to be alive at age 95. That suggests the money needs to last 35 years or more. We must consider inflation as well. All this affects the amount you should withdraw each year.
Therefore, we generally recommend limiting withdrawal rates to 4% a year. This assumes you do not want to erode the value of your account over time and that you want to be able to increase your income to offset the impact of inflation.
If preservation of capital is not important (perhaps you have no spouse or children, or you don’t like them very much), we can dramatically increase the withdrawal rate for you.
To be certain that you’re taking the right amount, talk with a financial advisor.