Experts Say You Should Withdraw This Much From Your Retirement Savings
The good news is, there are proven approaches to deciding how much money to take out of your accounts. The bad news is, some of the "rules" people use to calculate withdrawals could actually put them at serious risk of running out of cash.
You can find out here what the experts suggest -- and which common rule you might not want to follow, lest you jeopardize your financial security toward the end of your life.
Image source: Getty Images.
Here's what experts say you should withdraw
RMD tables are actually prepared by the
However, the
* It's simple for retirees, unlike certain other processes for determining withdrawal rates that require complex math.
* It allows you to withdraw more money each year as your life expectancy decreases and you have fewer remaining years to rely on your investments to produce income.
* You're more likely to build a balanced portfolio since the strategy doesn't rely on withdrawing only the income that investments produce -- which could lead you to invest too heavily in dividends.
* Your withdrawal rates respond to changes in the stock market since the amount you withdraw is based on your portfolio's current value, contrary to other approaches that calculate withdrawals based on the value of your portfolio when you began drawing down your account.
Because you're required to begin making minimum withdrawals at age 70.5, the
Here's the recommended percentage of your retirement account balance you should withdrawal annually from age 65 to 100, according to CRR.
Image source:
To use this recommended approach, find your current age on the chart and withdraw that percentage of your retirement account balance to use as your income for the year.
If you were 80 and had
A modified RMD rule is also an option
For those who'd prefer higher initial withdrawal rates, the RMD rule could be modified so retirees withdraw the percentage of their portfolio recommended by the RMD rules plus income from interest and dividends.
This would allow more consumption while still young and healthy enough to travel -- but the downside is that it could leave you less prepared if expenses rise dramatically in your later years when health issues develop.
Why the RMD rule is recommended
The RMD rule is presented as an alternative to other common approaches of calculating withdrawals from retirement savings including the oft-repeated 4% rule, which involves withdrawing 4% of a portfolio's value during the first year of retirement and adjusting upward each year only for inflation.
The 4% rule has a number of detractors despite it being one of the most common approaches to establishing a baseline for retirement savings.
How much should you withdraw from retirement accounts?
Ultimately, retirees all need to make their own assessments of how much they feel it is safe to withdraw. It's important to find a balance between being so conservative you struggle financially and risking running out of money too early.
Using RMD tables could be a strong approach that allows you to respond to changing market conditions so you ensure you have the money you need now and in the future.
The
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "
The Motley Fool has a disclosure policy.
___
(c)2018 The Pantagraph (Bloomington, Ill.)
Visit The Pantagraph (Bloomington, Ill.) at www.pantagraph.com
Distributed by Tribune Content Agency, LLC.
Honeywell workers, retirees rally against healthcare cuts, outsourcing
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News