How Much Should You Withdraw From Your Savings in Retirement?

One of the key financial questions to ask when thinking retirement is: At what rate should I withdraw income from my savings?  If withdrawn too quickly, you run the risk of outliving your savings, and thus being forced to dramatically reduce your lifestyle and security during retirement.  On the other hand, if withdrawn too slowly, you may miss the opportunity to fully enjoy your retirement.

What is an ideal withdrawal rate?  The answer depends on many variables, but regardless, the number is never static, because your optimal withdrawal rate can vary annually.  Maintaining this rate requires regular monitoring of your finances, and I have identified a set of rules for just this purpose.  These rules introduce discipline in the management of retirement finances and are designed to ensure that you maintain an optimal withdrawal rate, as well as your financial security, throughout retirement.

One of these rules governs the burn rate.  The burn rate is the rate at which next year’s withdrawal rate will exceed this year’s rate of return on your investments.  If the burn rate is positive, it means you will withdraw more than your investments earned that year.  This excess withdrawal, if continued, may lead to running out of money during retirement, so it’s important to take steps to stop this depletion. To maintain your capital during retirement, your burn rate should be zero, which means you are spending exactly what you are earning.  If the burn rate is negative, it means you will keep accumulating capital, because your investments are making more than you are withdrawing.  A negative burn rate is a signal that you can INCREASE your spending, while still allowing you to maintain your financial security.   The burn rate is just one of the eight rules I have adopted in my practice to ensure that clients maintain an ideal withdrawal rate.  This should allow them to:

•      Withdraw maximum income throughout retirement

•      Maintain their purchasing power

•      Minimize the chance of outliving their money

•      Preserve the stability of their regular monthly income

In sum, monitoring one’s finances is critical to maintaining an optimal withdrawal rate. To learn more about my eight monitoring rules, you can reply to this email or call me at 714-771-6000.

And by the way . . . If you have a friend or associate who needs help with their retirement planning, please call me with their name and number.  I will be happy to show them how they can maintain their lifestyle and financial security throughout retirement.

About the author

Rick Ulivi, Ph.D.

One Comment

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  • Sir,
    I have a pretty good cache of cash, huge 401k, Roth IRA accounts, a ton of Savings Bonds, pension, and (soon) social security accumulated while working for the Post Office.
    My main retirement goal was to burn down my exposed (non-Roth) interest accounts to avoid RMD’s. But this raises the tax situation. Short of converting everything to cash, what wpould you suggest for handling this money monster?
    Thanks for your time,

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