7 Replies Latest reply on Apr 12, 2012 2:16 PM by hoyo888

    Using savings

    Pickle
      After you retire what portion of your savings should you spend each year?  For example; I am 75, I have enough income to cover my living costs.  What % of my additional savings (IRA etc) should I be spending?
        • Re: Using savings
          JerryD
          Depends on whether you want an estate, DNA, etc. Have you talked to a financial adviser, possibly one at TIAA-CREF? If you use somebody local, ask friends and family for planners that do NOT sell anything. Ones that are commissioned to sell products can have a conflict of interest.

          Many people will throw out fixed numbers, but it is an individual matter that has to consider your specific circumstances and goals.
          • Re: Using savings
            Chrysalis
            As Jerry said, everybody's situation and priorities are different. Consulting a financial advisor is good advice. However, if you just want a quick-and-dirty estimate, you should check out the retirement calculators at www.dinkytown.net  I particularly like their "How Important is Social Security" and "How long will my retirement savings last?" calculators.
             
            Financial advisors usually recommend liquidating 5-6% per year s your savings will last 20 years or until you die. But I have observed that once most people hit 80, they start to slow down due to illness, lack of energy, and/or absence of playmates. They no longer want to go on big trips or participate in vigorous activities. So I would rather spend more of my nest-egg early in my retirement than save it for when I'm over 80. But that's just me.
            • Re: Using savings
              Michigander
              The percentages Crysalis posted look right to me.  I'm much younger having been retired at 62 by layoff in a bad economy fueled enrollment drop and lack of success in finding anything new in my extremely economically depressed area.   My domestic partner has been medically disabled and unable to work for several years now.  We and our financial advisor are being conservative and limiting our savings withdrawals to 3-4% a year.  With my partner's Social Security Disability and small state pension and my Social Security Retirement and and part-time earnings, we're able to make it as long as we're careful.
                • Re: Using savings
                  jofa
                  Of course, everything depends on your current financial condition. If you have $80m in savings and only spend $20k per year, that is far different than having $100k in savings and wanting to spend $50k per year.

                  My research shows that if you spend 4% of your savings per year and get a return of 1% on the balance that you don't spend, your savings lasts about 30 years. So if you have $200k in savings, you can easily pull $8k per year out. If the balance of $192k earns a measly 1% per year, you'll still have money when you're 105. If you can get more than 1% ( you should be able to but it depends on how much risk you're willing to assume ) then your money lasts longer.

                   If you expect to live another 20 years and DO NOT want to leave money to heirs, you can withdraw 6% ( again assuming you get 1% on the balance ) and be able to spend as much in your 20th year as you had spent in the 1st year.Earning 1% is below average annual inflation which has historically been 2.5%.  You should strive to make 2.5% minimum on your remaining money - not hard to do, requires teensy risk - so that the value of the money in 20 years is the same as it is now.  If you spend $15k in 2012, you'll need to spend $20k for example in 2020 to get the same items. Inflation is sneaky and insidious.
                   
                   
                   
                   
                    • Re: Using savings
                      JerryD
                      Jota, your analysis seems to miss the impact of inflation. I personally use 3.5%/year inflation which means that you must earn at least that amount to maintain your principal.Using my inflation assumption (or use whatever you want), I believe that your statement might be if you earn 1% + 3.5% for inflation then your savings may last 30 years.
                       
                      Many advisers push the 4% withdrawal rate. To do this blindly can be a problem if the principal can fluctuate due to the market.
                        • Re: Using savings
                          jofa
                          JerryD, you are right on all points especially considering that as the economy gets hotter,inflation rates will rise.  Another point to make then is that averages are just averages - inflation is a little more predictable and fluctuates in glacier speed when compared to investment markets.
                    • Re: Using savings
                      hoyo888
                      There are also other options if you look and ask the right questions. Too many times people do not ask the right question or are too conservative and stay within the box. I have found to go outside the box, you find different answers and sometimes better results.