What is a “safe” amount to withdraw at retirement?
Question: Chris from Florence: What amount do you suggest as a “safe” amount to withdraw at retirement? Is 4% still working?
A: You are referring to the much-referenced “4% rule” which says that over the past 30 years you can withdraw up to 4% per year (while adjusting inflation each year) and not run out of money. money. And the truth is, this approach may or may not work.
As with almost everything in the investment world, the devil is in the details. The 4% rule assumes that you have about 60% investments in stocks and 40% in bonds. It also assumes that your retirement expenses remain roughly the same throughout retirement. And finally, it was created at a time (in the early 1990s) when bonds produced a lot more income than what we see today.
So, if you were to blindly follow this rule without considering your specific situation, it is possible that you will be strapped for cash in retirement. Or, at the other extreme, you might needlessly force yourself to cut spending.
However, that being said, a 4% withdrawal rate can be a good place to start. But there is no hard and fast rule, especially since it can fluctuate from year to year. Your withdrawal rate should depend on a variety of factors, including your investment mix, spending habits, health, time horizon and current market conditions.
Allworth’s advice is that developing a personalized and sustainable exit strategy as part of a comprehensive financial plan should be high on every pre-retiree’s to-do list. Because, in essence, it helps answer that ever-looming question: “Will I be okay in retirement?” A financial fiduciary advisor can help you manage the numbers.
Q: Milford EK: How do withholding taxes work after I retire? Do I tell my 401 (k) to withdraw a certain amount? What about Social Security?
A: That’s a great question because withholding taxes – something you probably take for granted if you work for an employer – can be easy to forget once you’re out of the workforce . But they are definitely something you don’t want to forget since here in America taxes are owed as income is earned. If you wait until tax day to pay your entire bill, you may have to pay penalties and interest.
For your 401 (k), your package provider should automatically withhold taxes for you. If you receive periodic payments, the amount is calculated the same as salary income. (Note: You can tell the IRS that you do not want taxes to be withheld by completing Form W-4P. But then you will likely need to make estimated quarterly tax payments.)
When it comes to your Social Security benefits, you’ll need to take a more proactive approach, as withholdings aren’t automatic. And even if you don’t have to take taxes out of your Social Security, it can be beneficial because you would spread the tax burden over a year. Just fill out the W-4V form. There will be four options for the amount to be withdrawn from each payment: 7%, 10%, 12% or 22%.
Allworth’s advice is that deciding on a retention strategy should be part of your overall retirement planning strategy. And, of course, always consult a tax professional or financial fiduciary advisor regarding your specific situation.
Each week, Amy Wagner and Steve Sprovach from Allworth Financial answer your questions. If you or a friend or family member is having a money problem, please send these questions to [email protected]
Responses are for informational purposes only, and individuals should consider whether a general recommendation in these responses is appropriate for their particular situation based on investment objectives, financial situation, and needs. To the extent that a reader has questions regarding the applicability of any specific matter discussed above to their individual circumstances, they are encouraged to consult with the professional adviser of their choice, including a tax advisor and / or a lawyer. . Retirement planning services offered by Allworth Financial, an SEC-registered investment advisor. Securities offered by AW Securities, a registered broker / dealer, FINRA / SIPC member. Call 513-469-7500 or visit allworthfinancial.com.