If you’re nearing retirement, one of the most common concerns that might already have popped up in your mind is whether your fund is enough until the end or not. How much exactly should you spend each year to ensure that you’ll have enough until your last breath?
With life expectancy stretching longer and the cost of living becoming costlier, there is so much uncertainty ahead. You won’t know exactly how long you’ll live. You can’t also predict inflation. But experts seem to have a reasonable recommendation.
Considering the uncertainty of the future, many experts suggest that retirees stick with a 4% withdrawal rate in the first year of retirement. That means you only withdraw 4% of your portfolio’s total value. Adjust your withdrawals according to the inflation rate for the succeeding years.
Living at 4% per year or somewhere along that line seems like a reasonable advice. Some experts, however, beg to disagree. If you live up to your 90s, withdrawing 4% isn’t bad at all. In fact, it is indeed financially reasonable. The problem happens when you fail to consider your portfolio’s constantly changing market value.
To adjust your portfolio’s value with your yearly withdrawals and spending, below are two things you can do to stretch your retirement fund longer.
1. You should adjust annually. But first you can try to live until 70 years old using only your savings. That means you’ll delay Social Security until age 70. This way, living off on a fixed withdrawal until the next 20 or so years will be easier. Even so, you’d still want to adjust annually according to inflation rate.
2. Look for additional income. Just because you’re retiring doesn’t mean you can’t make more money. For additional income, you can use whatever’s left of your savings to buy annuities. Opt for annuities with income that also rises as inflation rises.