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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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