Retirement Withdrawals: What to Know

Only 1 in 4 retirees recently surveyed said they are very confident they know how much to withdraw from their savings and investments in retirement.

This makes me so frustrated. Another way to view that statistic is that only 1 in 4 retirees isn’t stressed about if their money will outlast them. That’s the implicit issue behind withdrawals: how much can you safely withdraw and still have a high probability that if you live well into your 90s you will still have money to support that much older you?

It is my goal that every retiree be very confident about their withdrawal rate. Retirement is a time to enjoy yourself, not worry.

There are a few key considerations that play into determining your safe withdrawal rate.

• When will you start making withdrawals? If you start using money inside your 401(k)s and IRAs at 60 or 62, your rate of withdrawal should be lower than if you start at 68 or 70.
  
  
• How many years until you turn 95? If you arrive at age 65 in average health, there is a good probability you will still be alive into your 90s. For those of you in solid health, my recommendation is to assume you will live until at least age 95. If you are in excellent health and have a family history of long-lived parents and grandparents, my advice is to base your withdrawal strategy on wanting your money to last until you are 100.
  
  
• Can you cover living expenses from guaranteed income sources? If your Social Security benefit, a pension (if you have one), and perhaps an annuity completely covers your essential living costs, you may be able to afford to withdraw more of your savings. Be careful with this though. I want you to think about the potential cost of hiring someone to care for you as time goes on or the potential cost of moving to assisted living. That potential cost needs to be part of this calculation.

As I explain in detail in The Ultimate Retirement Guide for 50+ (updated for 2023), there are a lot of moving pieces to make sure you never run out of money. As a very broad rule of thumb, if you start making withdrawals in your early 60s my advice is to aim to withdraw and spend no more than 3% or so of your account value in year one, and then adjust that amount for inflation each year. If you don’t start withdrawals until around age 70, 4% can work just fine. And if you have all your living costs covered by guaranteed income, more than 4% may be viable.