Here are some factors to consider when thinking about retirement fund withdrawals.
▪ How long you are planning to live in retirement. A conservative longevity assumption for someone retiring at age 65 is 25 years or so.
▪ How your funds are allocated. More money in equities may allow for a higher withdrawal rate. However, it also increases risk and volatility, so consider your comfort level with investment risk, along with your specific life situation.
▪ The rate of inflation. Many planning scenarios are based on an historical 2.5 – 4% inflation rate. However, if the inflation rate increases significantly, even a few percentage point difference can have a big impact.
▪ Insurance coverage and medical expenses. Insurance premiums and coverage can make a big difference. Likewise, most retirees will experience failing health at some point, which will mean increased expenses.
▪ Emergency situations may arise. A good emergency reserve can help keep long-term finances stable in emergencies.
This, of course, is by no means an exhaustive list. It pays to begin on a more conservative basis, and adjust as you see how things are going. (Remember, once the money is gone, it’s gone.)
Finally, regular financial check-ups make good sense. Great planning done 20 years ago that has never been revisited, is probably not great planning today. Life changes. It’s a very good idea to address those changes in your planning and keep retirement as financially secure as possible.
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Blog posting provided by:
Michael Snowdon, CFP ®
www.wealthridge.com
msnowdon@wealthridge.com
Michael is president of WealthRidge, a wealth management and financial planning firm, and is a professor emeritus of the College of Financial Planning. His focus in financial planning is to coach people in the process of meeting their goals and achieving their dreams.
