A safe withdrawal rate is often cited as 4% of your investable asset's balance. It helps answer the question: "Will we outlive our money?"
However, another question needs to be answered: "Will we be able to enjoy our money?"
4% is a rate beginning at normal retirement age around the mid-sixties (62-67). It is then indexed to inflation so that this withdrawal rate at age 75 would be closer to 5.5%. Advisors who manage your assets, however, have an interest in you withdrawing less and may encourage you to withdraw less. May be wise, maybe not. If you have safe money set aside, then the withdrawals may be able to continue increasing. Don't accept "rules-of-thumb".
More so, recent studies show that after a severe market downturn, the safe starting rate may be as high as 6.5%. How would that affect your lifestyle in retirement?
In order to determine the right rate you have to decide what income need is required for you and what inheritance you desire to leave for heirs, if any. In addition, the asset mix that you choose (how much in stocks versus how much in bonds) will determine your expected future return rate on your investments and this affects the withdrawal rate, too.
Most importantly, those withdrawals should come from the lowest expected return asset categories so that you can allow your long-term investments to be just that - long-term, where you are reinvesting dividends and interest income.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.