As soon as you retire from work after decades you will be entitled to your retirement savings and investments made through your 401(k) and other investments.
This money may not be enough for many retirees to live off of because let’s face it, you may still live for another thirty years.
Now I don’t know how 401(k)s work after retirement but I’m certain you it will be difficult to live the kind of lifestyle you want.
Like travelling, going to exotic places, eating exotic food and having the experience of your life.
Now the question is, what is the safe withdrawal rate for retirees living off their savings?
How much can you withdraw so you don’t exhaust your money long before you leave this world?
The answer to this question depends on three basic things;
- How much do you need to cover your basic monthly expense?
- What’s the amount in your savings and
- How long do you expect to live?
1. How much do you need to cover your monthly expenses?
Your monthly expenses will have a huge impact on the amount you withdraw from your savings.
If you spend two thousand dollars a month you will either withdraw two thousand dollars or more.
It definitely will be more because you will have to factor in unexpected situations where you will need cash fast.
2. How much is in your savings account?
If what you have in your savings account is not as much as you would like, then you’ll have to reduce the amount you take from your savings.
Also you would have to live below your means if you don’t want to exhaust your savings before time.
If you have a huge sum of money in your savings account then you can afford to take as much money as you can knowing you will still be covered.
But if you don’t, you’ll have to be cautious when taking money out of your savings.
3. How long do you expect to live?
If you have some money in your savings account that is supposed to last you for about 10 years or more, and you find out you only have 6 months to a year to live, how will you spend that money?
Do you have a side business?
This is the only reason you can spend as much as you want after retirement from your savings and not worry whether the money will finish or not because you have a side business that is bringing in cash for you every month.
This is why I always advocate starting your own side business whether you have a job or not.
It is important to have more than one source of income so you are not stranded when the first source dries up.
Safe Withdrawal Rate For Retirees Living Off Their Savings depends on these three factors that have been outlined above.
If you have any questions concerning your safe withdrawal rate, please use the contact us page to send your question or you can use the comment section below.
Manage Your Money Better
Below are some personal finance books I recommend to help you save more money. They have helped me a lot and I'm sure they'll help you in your journey to financial freedom.
- The Compound Effect by Darren Hardy
- Total Money Makeover by Dave Ramsey
- I Will Teach You to Be Rich by Ramit Sethi
- Master Your Money (Super Bundle)
- Need an extra $2,500? Get loans up to $5000
- Are you in debt? Get free debt consultation and find a solution to your debt
- Unshakable: Your financial freedom blueprint
- The New Money Masters
- Tools to make money in tough economic times
I have read about 5 out of the 7 books and I can boldly say they have helped me handle my finances better. I believe in them because they have helped me in my financial journey and I think they’ll help you too.