INDUSTRY INSIGHT
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I retired last year and have been drawing an income from my investments . The volatility in the market is worrying me – how can I be sure I won ’ t run out of money ? Running out of money is a top concern of almost all retirees . And market volatility , which had little impact on your life when you were a young investor saving for the future , suddenly can have a real negative impact on your wealth and your investment income . To help protect yourself against outliving your money , it ’ s important to be proactive about monitoring your withdrawal rate . For example , let ’ s say you retire with $ 500,000 and decide that you ’ re comfortable with withdrawing 4 % per year from your portfolio – that provides you $ 20,000 annually . Each year , you should look at the value of your account compared to how many dollars you ’ re withdrawing and recalculate the rate . For example , let ’ s say your portfolio drops 20 % to $ 400,000 in a down market . Now that $ 20,000 you ’ re spending represents a 5 % withdrawal rate from your account instead of the original 4 %. If a primary concern is preserving your wealth , you should consider adjusting your withdrawal rate back to 4 %, which would mean a reduction of income from $ 20,000 to $ 16,000 .
I ’ m tired of getting no interest on my money at the bank ! What ’ s a low-risk investment that will give me a better return ? I can ’ t afford to lose any principal because we may need the money next year . If you can ’ t afford to lose principal , then unfortunately that low-interest bank account is likely your best option . There are fixed income investments that may offer you a better interest rate than a savings account , but even fixed income is subject to market risk and interest rate risk if sold prior to maturity . It is possible to end up with less than you started with , especially if you don ’ t have a long time to keep your money invested .
I ’ m saving for the future but I always wonder about the best place to invest my money . Should I put everything into my 401 ( k )? Or are there better places to save ? Make sure you ’ re saving at least enough in your 401 ( k ) to get the full company match . For example , if your company matches 50 % of the first 6 % you contribute , be sure to defer at least 6 % of your income to your 401 ( k ). Otherwise , you ’ re leaving free money on the table . Saving money in your 401 ( k ) can offer significant current tax savings , since you are able to save dollars before they are taxed and lower your overall taxable income . However , it ’ s important to remember that in retirement all withdrawals from your 401 ( k ) will be taxed as ordinary income . This makes it a logical place from which to draw a monthly income , but a tough place from which to take larger withdrawals for things you might need , like a new car , new roof , or dream vacation . For this reason , it ’ s a great idea to build a non-retirement savings account as well .
This Industry Insight was written by Sara Botkin .
Sara Botkin is a Certified Financial Planner™ professional and president of Botkin Family Wealth Management in Peters Township . Visit www . botkinfamilywealth . com or call 724.941.1737 for more information . Have a question for our next “ Money Matters ” column ? Email Sara at sara @ botkinwealth . com .
Securities offered through LPL Financial , member FINRA / SIPC . Investment advice offered through Private Advisor Group . Botkin Family Wealth Management and Private Advisor Group are separate entities from LPL Financial . The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual .
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