Retirement Years
If you’re retired or approaching retirement, managing your retirement savings properly is extremely important.
Below, MsMoney.com helps you:
- Make an effective budget for retirement so you can stretch your retirement savings.
- Develop a plan for drawing funds from your savings.
Make Your Money Last
While you figure out how to make your money last through your retirement, consider these key elements:
1. Budget
Paying attention to your monthly income and spending is even more important during retirement. Why? To accurately estimate how long your money will last, you must know how much savings you have, your monthly income, and what you spend every month. Knowing these figures, you can either slow your spending to preserve your savings or spend your money more quickly because you have more than enough.
If you haven’t created a budget, take the time to determine your cash flow and net worth, essential steps to establishing an appropriate and realistic budget.
2. Generate Income
During retirement, working is a great way to make extra money (and preserve your sanity). The possibilities for fulfilling work are endless, and the extra income can relieve pressure on your retirement savings by reducing the amount you need to withdraw month-to-month.
3. Allocate Assets
The more you depend on your retirement savings for income, the more conservatively you should invest because asset preservation is critical. However, depending on the size of your savings, it may make sense to invest a portion of your savings more aggressively.
If you can afford to invest a larger portion of your savings in higher risk investments, the higher returns could help you grow your savings during retirement or at least provide more monthly income.
To learn more about investment strategies and how to pursue higher returns, check out MsMoney.com’s Investing section.
Drawing Funds From Your Savings
Most people slowly deplete their retirement savings as they age. It takes careful planning to make sure that you don’t deplete your savings too quickly.
To calculate how much you can safely withdraw from your savings, you need to estimate:
- How much of your income you need to draw from your savings
- The inflation rate
- The rate of return you expect on your investments
Fortunately, the power of compounding is at work to help preserve your savings. In fact, depending on how much income you need and the size of your savings, you may actually accumulate money during retirement.
The flipside of this planning is to make sure that you aren’t drawing from your savings too slowly. After some analysis, you may discover that you have more than enough money and can afford to spend more!
How many years will your savings last? To use this table:
- Determine the percentage of your savings that you intend to use during the first year of retirement (e.g., if have $500,000 in savings and withdraw $25,000, you spend 5% of your savings).
- Add the rate of inflation you intend to use (in the U.S., inflation has averaged between 2-3% for the last 18 years).
- Estimate the rate of return you expect on your savings.
- Using the sum of the percentages and your expected rate of return, the table will tell approximately how many years your savings will last at that rate of withdrawal.
|
Rate of return: |
4% |
5% |
6% |
7% |
8% |
9% |
10% |
11% |
12% |
|
% withdrawn first year |
|
|
|
|
|
|
|
|
|
|
2% |
68 |
158 |
large |
||||||
|
3% |
40 |
52 |
100 |
|
|||||
|
4% |
28 |
34 |
43 |
72 |
|
||||
|
5% |
22 |
25 |
29 |
36 |
55 |
|
|||
|
6% |
18 |
20 |
22 |
26 |
31 |
44 |
|
||
|
7% |
15 |
17 |
18 |
20 |
23 |
27 |
36 |
|
|
|
8% |
13 |
14 |
15 |
17 |
18 |
21 |
24 |
31 |
|
|
9% |
12 |
12 |
13 |
14 |
15 |
17 |
19 |
22 |
27 |
|
10% |
10 |
11 |
12 |
12 |
13 |
14 |
15 |
17 |
19 |
|
11% |
9 |
10 |
10 |
11 |
12 |
12 |
13 |
14 |
16 |
|
12% |
9 |
9 |
9 |
10 |
10 |
11 |
11 |
12 |
13 |
|
13% |
8 |
8 |
9 |
9 |
9 |
10 |
10 |
11 |
11 |
|
14% |
7 |
8 |
8 |
8 |
8 |
9 |
9 |
10 |
10 |
|
15% |
7 |
7 |
7 |
8 |
8 |
8 |
8 |
9 |
9 |
Source: Making The Most Of Your Money by Jane Bryant Quinn
