Course 508: Is Your Retirement Portfolio on Track?
How Much Can You Withdraw, and Will That Be Enough?
In this course
1 Introduction
2 What's Your Starting Point?
3 Do You Need a Sure Thing?
4 How Much Can You Withdraw, and Will That Be Enough?
5 Making Up for Shortfalls

To help determine your optimal portfolio withdrawal rate given the specifics you've just outlined, find the point on the worksheet where Asset Mix, Certainty of Income, and Years Expected in Retirement intersect. For example, someone with a Moderate Aggressive portfolio seeking an 85% degree of income certainty who expects to be retired 30 years would target a 4.8% withdrawal rate. That's the percentage of your portfolio that you can withdraw per year without a significant risk of running out.

Note that these withdrawal rates assume that your withdrawals will step up annually to keep pace with inflation. They also assume that you'll completely deplete your assets during retirement. Thus, if you're hoping to leave assets to your heirs, you'll need to shrink your withdrawal rate, switch to a more aggressive asset allocation, save more, or plan to retire later.

To help determine whether that withdrawal rate amount is enough to cover your spending needs in retirement, look at the second page of the worksheet. Start by totaling up your investment assets, including taxable accounts as well as any company retirement plan assets.

Next, multiply that amount by the percentage withdrawal amount that you came up with in the preceding step. That's the actual amount that you can withdraw from your portfolio during the first year of retirement. (Divide by 12 to arrive at a monthly withdrawal amount.)

If you're retiring and won't have income from other sources--for example, if you don't have a pension and aren't yet eligible for Social Security--decide whether that income--plus an annual inflation adjustment--is enough to sustain you during your retirement years.

After you've figured out how much help you'll get from your portfolio during retirement, take stock of other expected sources of income during retirement--excluding any withdrawals or income from your investment portfolio. Include income from part-time work, pensions, and any annuity income you're expecting. Also estimate your Social Security benefits using one of these calculators. Add those income amounts together with the income you can safely withdraw from your portfolio. That's the amount of income that you can expect during your first year of retirement.

Finally, adjust your income for taxes. The quick and dirty way to do this is to multiply the income amount by your tax rate. In reality, however, your tax burden may be higher or lower in retirement than it is now..

Next: Making Up for Shortfalls >>

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