One of retiree’s biggest fears is running out of money before they die. It’s a common thought that has a lot of unknowns in the mix, adding to the difficulty of figuring out just how much money is needed to make it all the way.
How much longer will you live? What if a sudden health issue surfaces and requires substantial money to treat? How will the global markets perform while you are in your golden years?
While these variables will vary from person to person, there are some rules of thumb you can live by that will help you sleep better at night knowing you made sound decisions that will help you not run out of money during retirement.
The following entry was sparked by an article I read that was written based on simulations of historical returns, projected economic outlook, and the assumption that you will enjoy 30 years in retirement and maintain a balanced portfolio with a stock to bond ratio of either split 50/50 or 60/40.
If you follow this pattern, you should have an up to 90% chance to not run out of funds before you die. Your savings WILL NOT GO TO ZERO. Conversely, it also could mean that you pass away with more money than you started with!
Mind you, this is a guide, and simply a guide. The best plan for yourself will depend on your situation, notwithstanding the variables I mentioned above.
Withdrawal Rates Rules of Thumb
A common rule is one called “percent of portfolio.” This is very simple – you take out 4-5% of your portfolio each year regardless of need. You don’t react or adjust due to portfolio performance or market conditions. No matter what the value of your portfolio, you stick to this steadfast rule.
Second, we have the “dynamic spending rule.” This sets an annual withdrawal rate that has a top and bottom level, and what you take out depends on market performance.
The most utilized rule is the “4% rule.” This was something that was revised to 4.7% and you’ll take that out on your first year. If you have $1,000,000, you take out $40,000. Every year, you adjust that number, and also consider inflation. With current conditions, you have to REALLY look at inflation, so the 4% number may have to be modified with all of the turbulence we are seeing.
What Actions Should You Take Today?
Much like a hurricane, there isn’t a lot you can do other that prepare for what’s to come. You may die worried that you will soon be broke, scraping rock bottom, or you could die with millions of dollars. Nobody can predict if an illness, tragedy, or other cash consequence will come to surface at any time in life. However, you can save for a rainy day, stay debt free, and perhaps most importantly in today’s era of extreme inflation – diversify your portfolio.
The best suggestion I can make in order to get ahead of this is look into investing in gold and silver. Precious metals have long been known for their perceived store value, and outside of being investments, they have many uses in society. More so silver vs. gold. You can do this by starting a precious metals IRA.
Full information on how this works is on this page.