If you are putting money away on a regular basis for your retirement and have a savings goal in mind, you are doing better than most people. However, there is no secret savings amount that can ensure a pleasant future. If you are wanting the best possible chance of success, you’ll need to learn how to use your money wisely during retirement. And that is where many individuals go wrong.
You can’t withdraw the amount of money you would like during retirement
$1 million in retirement funds might seem like a lot, but if your retired for 30 years, it won’t go as far as you would wish. That leaves you with around $33,333 per year when divided. It may be enough to pay your basic expenses when combined with Social Security, but you won’t live like a king.
Some people become overly optimistic when they have a six- or seven-figure sum stashed away in savings and their name on it, and they move to spend it too soon. According to a recent Fidelity poll, 20% of employees think they can withdraw 10% – 15% of their retirement funds each year, but that approach is highly dangerous.
If you had a million dollars in the bank and spent 10% of it each year during your retirement, you could have a fairly comfortable retirement for the first few years. However, you will run out of cash in about ten years unless you get a job or depend on family members’ generosity.
How to make your retirement savings last
If you do not want this to happen to you, you must pick a secure withdrawal rate for the amount of your savings. The old adage was to withdraw about 4% of your savings in the first year of your retirement and then increase this amount slightly in later years to combat inflation. According to Fidelity’s research, financial advisors recommend a withdrawal rate of between 4% and 5% each year.
Some individuals, on the other hand, choose to be more cautious and withdraw only 3% of their funds each year. Others prefer to create a bespoke strategy that allows them to take out more money in the early years of retirement while they are still working and budgets a smaller amount for the later years in life when they plan on living closer to home.
The size of your savings account and your retirement plan will determine the best strategy for you. The most essential thing is to choose a withdrawal method that you believe will help your assets survive through your lifetime and stick to it. It’s usually preferable to be a somewhat optimistic when predicting how long you will live. It’s better to go out with a little money in savings than to run out of cash because you outlasted your expectations.
When you’re approaching retirement, take a fresh look at your withdrawal strategy to ensure that you’re still comfortable with it. If you don’t know whether you can live on your withdrawal amount, maybe you should reconsider your retirement plans or push back retirement to allow more time to accumulate funds for your future.