Key Takeaways
\nMorningstar\u2019s new analysis suggests a 3.9% starting withdrawal rate gives retirees a high probability of not running out of money during a 30-year retirement.Delaying Social Security until age 70 can meaningfully boost lifetime retirement income, but it may require temporary spending cuts or bridge strategies.<\/p>\n
You’ve done the work of saving for retirement, but now that you’ve reached your golden years, do you have a plan for how you’ll spend down your nest egg?\n<\/p>\n
For future retirees, Morningstar suggests withdrawing 3.9% of your portfolio the first year and then adjusting for inflation every year after that, according to a new report.\n<\/p>\n
The researchers found that a starting withdrawal rate<\/a> of 3.9% had a 90% probability of success over a 30-year retirement horizon, assuming a portfolio composed of 30% to 50% stocks, with the remainder in bonds and cash.\n<\/p>\n So what would this practically look like for a retiree?\n<\/p>\n If someone had about $1 million saved, they would withdraw $39,000 the first year. The next year, they would withdraw $39,959, assuming a 2.46% inflation rate.\n<\/p>\n What This Means For You<\/p>\n Your withdrawal strategy is just one decision you’ll make when retirement planning. Make sure to carefully weigh factors like taxes, investment fees<\/a>, and Social Security timing, too.<\/p>\n The retiree would then continue to adjust their withdrawal amount each year based on the inflation rate. In nine out of 10 scenarios, they would end up with at least some money left over if their retirement lasted 30 years.\n<\/p>\n While this guideline can be helpful as a rule of thumb, it should be used as a starting point\u2014factors like taxes and fees can further erode investment returns, the researchers point out.\n<\/p>\n For example, someone who has the bulk of their retirement savings housed in a Roth IRA<\/a> and invested in low-cost index funds<\/a> will part with less of their money when taking withdrawals compared to someone who’s tapping a traditional 401(k) that’s primarily invested in actively managed funds.\n<\/p>\n This is because withdrawals of investment earnings from Roth IRAs are tax-free. In contrast, you must pay ordinary income tax on both your investment earnings and any contributions you withdraw from a traditional 401(k).\n<\/p>\n Don’t Forget Social Security <\/p>\n