{"id":12589,"date":"2018-09-07T13:27:14","date_gmt":"2018-09-07T20:27:14","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=12589"},"modified":"2018-09-17T10:25:07","modified_gmt":"2018-09-17T17:25:07","slug":"investor-facts-what-is-a-withdrawal-rate","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investor-facts-what-is-a-withdrawal-rate\/","title":{"rendered":"Investor Facts: What Is A Withdrawal Rate?"},"content":{"rendered":"

Withdrawal rate is amount of money one can withdraw monthly or annually from a retirement investment portfolio<\/a> without running out of money.<\/p>\n

The money in a retirement portfolio is there to spend. Taking money out reduces the portfolio, but the balance also tends to\u00a0increase\u00a0thanks\u00a0to investment growth.<\/p>\n

A withdrawal rate calculation estimates how much money you can take out per year without going broke during the years\u00a0you need income.<\/p>\n

\"withdrawal<\/p>\n

\n

You may have heard of the \u201crules of thumb\u201d for a safe withdrawal rate in\u00a0retirement.<\/p>\n

Over the last few decades, some have\u00a0suggested that a 4% annual withdrawal rate was safe.<\/p>\n

However, after the longest recession (2000-02) and then the deepest recession (2007-09) since the Great Depression, the industry as a whole has come to agree that maybe retirees\u00a0need to be a little more conservative.<\/p>\n

Here’s a simple\u00a0trick to get started thinking about your potential withdrawal rate in retirement:<\/p>\n

Take 1\u00a0and divide it by the number of years you believe you will\u00a0live. If you retire at 62 and think you\u2019ll live till 90, then 1\/28 = 0.0357.<\/p>\n

That means you have a 3.57% withdrawal rate.<\/p>\n

If you\u2019re 65 and think you\u2019ll live till 85, then 1\/20 = 0.05 or a 5% withdrawal rate.<\/p>\n

How withdrawal rate works<\/h2>\n

This withdrawal rate calculation works because the older you get, the more you can withdraw. You have less time, so the financial risk is lessened.<\/p>\n

Now that we know this, how much do you need to retire? What\u2019s your\u00a0magic number?<\/p>\n

It takes a little backing into the math, but this is why we did the withdrawal rate calculation\u00a0first.<\/p>\n

If you\u2019re going to retire today and you\u2019re 62 years of age, then you know you can safely withdraw 3.57% from your portfolio without outliving your money.<\/p>\n

Let\u2019s say you plan on spending $60,000 a year after you retire\u00a0and your\u00a0Social Security income will be $20,000 a year.<\/p>\n

That leaves you with a $40,000 gap to\u00a0fill. All we need to do now is figure out how much you need in your portfolio in order to retire today.<\/p>\n

So, take $40,000 and divide it by 3.57% and you get $1,120,448.18. (Include the percent symbol when you calculate this on a calculator.)<\/p>\n

There you have it! While it takes a few steps, you now have\u00a0a pretty good start on an retirement income plan<\/a>.<\/p>\n

There’s more to all of this, of course. But these pretty straightforward equations can at least get you into the right frame of mind to make decisions about when to stop working, work less or, perhaps, to continue earning money a few years more.<\/p>\n

MarketRiders, Inc. is a registered investment adviser.\u00a0 Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.\u00a0 Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and\/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.<\/i><\/small><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Withdrawal rate is amount of money one can withdraw monthly or annually from a retirement investment portfolio without running out of money. 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