September 16, 2021

The concept of a safe withdrawal rate is important for thinking about your retirement. Knowing how much you might need to take each year to adjust for inflation and other unexpected costs will help you avoid financial challenges down the road. How do you know what’s enough to support you possibly for years to come?

The difficulty with determining a safe withdrawal rate is that there are so many factors that can influence what safe looks like for you. For example, the basic recommendation for retirement withdrawals is to take no more than 4% of the investment total value every year. The primary basis of this that proves problematic is that a retiree’s financial situation needs remain much the same for many years or even decades for this to be a safe approach.

A more cautious approach is to look at a 3% withdrawal rate which gives you a good starting point to consider what’s most important and unique to you. After you have thought about an appropriate withdrawal rate, look back at your portfolio to evaluate your living costs.

Can you make additional changes to your retirement, such as delaying your social security retirement age, continuing to work part time in retirement or reducing your expected retirement expenses? There are many other components that go into thinking about your retirement planning, such as longevity, health care costs, and your estate planning goals. All of these should be completed when thinking about your holistic estate planning and retirement planning strategy.