How much of my nest egg should I take out in retirement?


A generic rule of thumb financial advisors have used for retirees is to withdraw 4% of their account balance each year in order to not out live your money.

However, interest rates have been at historic lows the last nine years, so conservative investors may need to accumulate more funds if they wish to use the 4% withdrawal rate.

Retirement financial success is too complex to be codified by a simple rule of thumb that was developed in the 1990s, when interest rates were significantly higher. Retirees with their savings in safe instruments such as bonds and annuities were getting more income than retirees today do with similar assets.

An article in the Journal of Financial Planning in October 1994 by William Bergen advocated the 4% rule.  Bergen, however, stated “it is appropriate to advise the client to accept a stock allocation as close to 75% as possible, and in no cases less than 50%”

American life expectancies have increased. A man reaching age 65 in 1970 could expect to live 13 more years, but by 2011 that figure was 18 years. A woman's life expectancy at age 65 rose from 17 years in 1970 to 20 years in 2011 (Centers for Disease Control).

Therefore, retirees need to pull out their spreadsheets (or seek out a financial advisor and/or tax advisor) to complete a simple projection considering your expected savings at retirement, any debts still outstanding, earnings rates and cost of living rates.  There is no magical percentage, but you will find that the more you have at retirement, the smaller the percentage of assets you will need to withdraw each year.