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How Much Can You Spend in Retirement?

By David Thatcher, CFP®, Partner & Senior Financial Advisor

May 2017

You’ve worked hard your whole life to save for retirement and build your wealth. Between all the resources in your portfolio, you can now live off of what you’ve amassed. But 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?

How Much Should You Withdraw?

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. 

Research shows that if you are investing for the long-term, you can expect to earn 7% average annual return, adjusted for inflation and accounting dividends.  Based on this average, you might assume that you can afford to withdraw around 7% of the initial portfolio value (plus a little more for inflation each year). But since past performance is no indication of future results, and 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 create a strategy that will work for you and your unique situation?

Understand the Data

It’s crucial to have an understanding of the research about what rates of withdrawals 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.

Evaluate 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 make sure they line up with your available funds.

Stick With the Plan

A real and serious consideration is your commitment to 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 in the dark in regards to 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 we come in. We have developed a personal approach to help you work through these questions and concerns. We’d love to work with you to build a plan that will not only provide for you in retirement, but also bring you confidence and peace of mind. Contact us at 866.888.6563 so we can review your current retirement strategies and make sure your hard-earned wealth works just as hard for you in retirement.

About Cypress Wealth Services

Cypress Wealth Services, an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. CWS is comprised of professionals with diverse backgrounds and extensive experience and qualifications. CWS is uniquely qualified to serve a broad range of client needs. Their experience and expertise act as a foundation for their client service process, The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With offices in Palm Desert, and Anchorage, the firm serves clients across the country. Learn more by visiting