Financial Planning is a biggest concern for most of the seniors who are in retirement. Financial planning becomes a very critical part for them as they have changed there course from saving to spending what is saved. Financial planning can decide whether you will be able to enjoy retirement or will be out of money in 80’s. You have collected your nest egg and now your principle should be to make it last your entire life. It is very hard to run out of your retirement savings in late 80’s to early 90’s.
Your role has switched from saving as much as you can to preserving as much as you can. Take aggressive steps to preserve your capital. Most of you must have invested in stocks, Mutual funds etc throughout our life. In retirement you do not want to be aggressive in investing but your aim should be preservation.
In this article I will talk about how much you should cash in every month and which accounts has minimum withdrawal clause.
Throughout your life you would have invested and saved for retirement through following accounts:
- 401K – Employer Sponsored Plan
- Roth IRA
- Traditional IRA
- Personal Savings
Your first step should be to add all the amounts in those accounts and come to the total value of your nest egg. Now once you have got the total value make sure none of your investment is too aggressive. If any thing is aggressive switch to lower to moderate risk levels. For retirement years you should consider about 4-5% return to be on safe side. I will explain the following example to let you understand how much can you remove from your accounts.
Suppose my nest egg value is $1,200,000. I am earning 5% interest on my savings and they are all in bank CD’s. 5% of $1,200,000 is about $60,000. That is you will earn $60,000 every year from interest payments. Ideally you should be looking to withdraw any amount less than the interest payments.
So in this case I will withdraw $55000 every year which amounts to $4580 per month before taxes. You should try to remain with in this figure for as many months as possible. By following this method you ensure that you are only using interest payments and your capital is not used and is available for later years when you would need a lot of medical assistance.
Now knowing what you need the question comes from which account you should withdraw. Different accounts have different terms regarding withdrawal. Normally you can withdraw from any of the above accounts without penalty after you are 591/2 years old. But there is catch for Traditional IRA and 401K plans….. minimum withdrawal requirement. In these plans you are required to make mandatory withdrawals at age 701/2. So I would suggest you use those account initially to fund your expenses. Roth IRA does not have that mandatory withdrawal clause and can be kept unused for any time you want.
Other than the minimum withdrawal clause it is completely up to you how and from where you want to take out money. You can even take out part of money from every account or whole amount from one account.
Some years you may have to withdraw more but if it is for only some years it should be okay but do not withdraw more just because you had to buy Christmas gifts. Try to show discipline and do not withdraw more unless there is some real emergency.
I hope after reading the article you got the idea of how much to withdraw and how to make your money last through your retirement. Even young people can be benefited from the article because they can plan there savings accordingly. If you have any questions you can contact me via Associated content (www.associatedcontent.com ).