retirement planning, what withdrawal rate is right,, Beau Henderson, retirement resrouceYou’ve worked hard to save for retirement and build up a nest egg. Between all the resources in your portfolio, you can now live off of what you’ve amassed. Only now you have a new set of questions to answer: How much do you withdraw to replace your income? How much can you safely take out and still have enough to last through your retirement?

Withdrawal Rate

When taking withdrawals from a portfolio during retirement to fund income needs, there is a risk that the rate of withdrawals will deplete the portfolio before the end of retirement.

Since you know that stocks have historically earned an average of 8% a year, you assume that you can afford to withdraw 8% of the initial portfolio value (plus a little more for inflation each year). But in reality, to protect against the uncertainty of the market, you may have to limit your withdrawals to 4% or less. Since there is no simple, one-size-fits-all plan, how do you figure out what will work for you and your unique situation?

Understand the Data

It’s crucial to have an understanding of the research about rates of withdrawals that can be sustained over a retirement period. This is the first step in building a plan to avoid excess withdrawal rate risk.

Technically, the “safe” withdrawal rate means the rate that relies on historical analysis. This rate should be sustainable, even in the worst-case scenarios. In profitable years, though, a higher rate would work, meaning that it’s not easy to pick an appropriate withdrawal rate.

You also need to look at time horizon and asset allocation. The sooner you start tapping into your funds, the lower your rate should be in order to stretch your money out. Regarding asset allocation, your mix rate will also determine your rate of return. Bonds are lower risk, but will not generate the same amount of gains as stocks.

Consider Your Spending

Choosing a withdrawal rate also means weighing your desire for increased spending in relation to your willingness to reduce spending. This relies partly on your attitude towards spending, but also on your risk capacity. If you have Social Security and a substantial pension that is payable for life, then you have more capacity for risk in taking withdrawals from your portfolio. If not, you may need to reexamine your goals and expense categories to line up with your funds.

Stick With the Plan

A real and serious consideration is sticking with the withdrawal plan. Just like any financial goal, if you aren’t consistent, there will be consequences. If you don’t stick with a budget, your finances will be a mess. If you don’t adhere to a savings plan, your savings won’t grow.

One way to ensure that you abide by your strategy is to have regular meetings with your advisor. In this way, you will develop a clear view of your situation and won’t be blind to what is happening with your nest egg.

Prepare for the Unexpected

Whether the plan is realistic is also a function of whether other contingencies have been planned for, or whether the portfolio is being relied upon to meet long-term care needs, unexpected health care expenses, and other risks faced in retirement. It’s easy to fall into the trap of determining your income needs without considering those significant, periodic expenditures such as replacing a roof or buying a new car.

It can be overwhelming to keep all of these factors in mind when determining your retirement income, but that’s where I come in. I’d love to address your concerns and questions and work with you to build a plan that will not only provide for you in retirement but also bring much joy and richness to those years of your life. To learn more, download our free report, 12 Keys to a Successful Retirement Strategy today. If you need help, call my office at 770.249.7424 or email me today at

About Beau Henderson

Beau Henderson is a financial advisor, author, coach, radio personality, and CEO of RichLife Advisors. He has helped over 3,000 clients to not just improve their relationship with money, but to live the life of their dreams.

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