Rival Theories to The 4% Withdrawal Rule Keep Popping Up

Category: Financial and taxes in retirement

May 30, 2015 — One of the most important subjects about retirement is how much you can take out of your retirement funds. Withdraw too much too soon, and you run out of money for your old age. Take out too little, and you shortchange your fun – plus leave more than you intend to your relatives and/or the government. This article will explore some new competing theories to the popular 4% rule, which has long been viewed as the gold standard for retirement withdrawals.

One of the key assumptions about the 4% rule, which theorizes you can almost always withdraw 4% of your retirement savings every year without danger of exhausting them, was that your investments would at least earn something close to 4% over the long haul. The so called 4% rule is credited to California financial planner Bill Bengen. Sure there would be some bad years, but in the long run the better years would take care of that. The problem is that in the past 10 years it has been hard to predict how much your investments would earn. For example if you invested in bank CDs, you would not have got anywhere near 4%. If in stocks or bonds, 2008 would have produced whopping losses, although mostly recovered since then. Stocks are very high now, so there is worry about a fall. There is always the possibility of a catastrophic worst case scenario, when almost no approach is safe. Yet most people’s experience is one of underspending.

New theories are plentiful. One popular one is to adopt the Required Minimum Distribution formula from the IRS. This method has relatively modest withdrawals in the first years (starting in the year you turn 70 and 1/2 (3.65%) and gradually escalating to 15.87% at age 100. The beauty of this approach is that it plays it safe – you don’t take out much in early years, so if you are lucky enough to live a long life you get to enjoy the money.

Other approaches, and there are many, are more complicated. In a recent NY Times article, “New Math for Retirees And the 4% Rule”, the newspaper explained some of these competing strategies. Those include the Constant Inflation-Adjusted Spending, Bengen’s Floor and Ceiling Rule, and Guyton and Klinger’s Decision Rules. They all assume that the retiree has a 1$ million portfolio, is 65 years old, and is 50% invested in stocks and 50% in bonds. In general this hypothetical retiree could usually safely take out $30,000 a year without running into trouble. You can read more about these strategies in the Times article, but here is a brief summary of each.

Rival theories
All 3 of the theories here are basically a proposed improvement over the original Bengen 4% rule. They start with that, but go on to try to accommodate periods when returns are much better than normal, much worse, or experience big changes in inflation. If the returns are exceptional, you get to take out more than normal. But if the market tanks, you don’t take out so much to protect your principal. Likewise if the inflation situation changes drastically, you are adjusting to that. All have the goal of letting you spend as much as you can safely in a changing environment.

Constant Inflation-Adjusted Spending
Take a certain percentage from the portfolio in year 1 (such as 2.85%) and adjust that percentage every year thereafter for inflation.

Bengen’s Floor and Ceiling Rule
Take a certain percentage from the portfolio in year 1. In subsequent years that percentage could increase as much as 25% in great market years, but only 10% in bear markets.

Guyton and Klinger’s Decision Rules
Withdrawals increase to match inflation. But if the withdrawal rate ever reaches 120% of the year 1 rate, the withdrawal rate is cut. The rate could increase 10% in good market years.

What to do
As you can see from this discussion, the issue of how much to take out of your retirement assets every year is complicated. It is worthy of serious thought and a good discussion with your financial adviser to arrive at the strategy that you are comfortable with. Of course we realize this is a lucky, first world problem compared to the situation for many retirees, whose retirement savings are far less than $1 million.

Comments? Which theory are you planning on using – or do you have one of your own. Please share your thoughts in the Comments section below.

For further reading:
Which Withdrawal Strategy Should You Use in Retirement (Bob Powell- MarketWatch)
How Much Should You Take from Your Retirement Funds Each Year
You and Your IRA and 401(k): An Owners Manual



Posted by Admin on May 29th, 2015

52 Comments »

  1. I’d like to see some discussion on how to withdraw retirement savings when you also have a pretty substantial pension payment as well. Combined with Social Security, my wife and I would be able to retire fairly comfortably just on my pension payment alone, (which is partially inflation protected). My IRA savings are really just gravy and I really don’t believe we have to worry too much about drawing it down too quickly. Is anyone else in this scenario? Thoughts?

    by Fred — May 30, 2015

  2. Alll my retirement money comes from Soc Sec, pension, & RMD. I don’t get to choose how much.

    by Sallie50 — May 30, 2015

  3. Fred. I’m in your same situation. Its frustrating to see these low withdrawl rates. I say, spent it when we are healthy. Happy retirement!

    by Mark — June 3, 2015

  4. Fred,
    We’re lucky enough to be in the same boat as you are & very grateful to be so blessed. Our portfolio provides for vacation income and front loads our checking account for the year.

    We are using a combination “bond ladder” and 3.5% withdrawal rate to manage withdrawals. Withdrawals are taken from the stock portfolio during “good” years and if the market takes a dive the bond ladder, which contains 5 years worth of withdrawals, will be the source of income. If necessary, we’ll replenish the bond ladder when the market recovers. I retired in 2011 and so far no problems.

    We realize that we’re very lucky to be in such good shape, but then again over the years I’ve realized that the harder I worked, the luckier I got.

    by Doug — June 3, 2015

  5. After years of savings and watching the balances inch up I know I will have a hard time taking the money out. We sat with the financial guys and tried to come up with a list of expected expenses and tried to guess high. That was an interesting exercise as we hadn’t really thought about what we’ll have to spend. Which is why we set up a couple of annuities. That way, it will still feel like we’re getting a paycheck and, along with Soc. Sec., we can budget around that, leaving other savings and investments for special trips or occasions.

    by Flatearth6 — June 3, 2015

  6. The 4% Rule and all the other rules are mainly meant to be guidelines. All financial planning is based on the specifics of the particular situation. You can see this from some of the previous comments. For each situation there are many factors but it really should be needs based to begin and then do you want to try to leave something to heirs.

    For this subject there is also the question of whether your ‘retirement funds’ are post or pre-tax savings, or a combination. There are various tax implications for what you withdraw, particularly if you have additional income like pensions or social security. For example, if you have pre-tax (like IRA) funds then you get taxed at regular income rates rather than capital gains rates. Unless the tax law changes you will be required to begin withdrawals of those IRA’s at 70 1/2 anyway. So depending on how old you are you may want to look at the impact of beginning sooner than later from a tax perspective. These kind of strategies only really matter if you have substantial assets in these accounts and probably other income to boot.

    The bottom line is there is no ‘one size’ fits all. Guidelines are just that. It is difficult to use a simple solution to a complicated topic and feel you will know what to do. In addition you really need to look at things at least annually so you can adjust as necessary. There are many other aspects I haven’t mentioned but I always get a little worried when simplified approaches don’t also expand on the complexity of this kind of topic so folks will at least dig a bit deeper. I’m glad to see the moderator mentions this at the end. Good advice. My 2.5 cents.

    by Mejask — June 3, 2015

  7. i have to agree fully with MEJASK. the 4% rule is a guideline we all can consider. it may or may not fit every ones financial situation. the story is complex and expert advice is highly recommended. my wife and i will make our initial choice by AUGUST 2015, subject to modification down the road. good luck to all.

    by david — June 3, 2015

  8. Flatearth6, it’s too bad you bought the story of the “financial guys”. Buying fixed annuities, regardless of when they start, is one of the worst financial decisions people can make. The agent gets a big commission and the customer gets a non-inflation adjusted income, which is always a poor option in retirement. And it’s generally an irrevocable election. Stay away from commissioned sales people. There is no professional objectivity when the only way you make a living is by selling somebody something.

    by David W. Austin, CFP — June 3, 2015

  9. Great comments, Majask.

    As Majask mentioned this too complicated a subject for one size fits all fix.

    Many people do not have a pension available to them, and if the have one, not one that will cover expenses. I like the idea from Flatearth6 of protecting a portion of investments in annuities. What I don’t like about them is they are more of an insurance policy and cost the retiree, dearly if they don’t live long or need the money earlier than expected. Fred, it would wonderful if everyone had your situation. I’m working on being one of those lucky ones to live off the pension and use investments for fun.

    Good luck to everyone here. I love hearing about other’s situations and learn from them. Thank you. -AJ

    by AJ — June 3, 2015

  10. Excellent comments all. Fred, I’m in the same boat as you are, except I just retired a few months ago, and although my pension is not “substantial” in my opinion, it is more than adequate. I invested heavily in my retirement accounts for about the last twenty years of my working life, so my net pension is actually more than my net take home pay was when I worked because I no longer have the withdrawals for my retirement accounts. That was the key to my retirement date – having at least as much net pension pay as my net take home pay was. And I’m still a few years away from drawing Social Security. That, plus my retirement accounts are basically just play money. The plan is to have enough money to live until the day I die, but to also spend it all by the day I die…..;o)~

    The 4% rule is still a valid guideline. Even if your retirement accounts don’t earn a penny, it will still last 25 years if you only withdraw 4% per year and do not adjust for inflation. The markets will still go up and down over time, and they have always shown to bounce back after pulling back every few years. One of my keys for inflation adjustments is to move to a state with a lower cost of living, which I plan to do in a couple of years. I also do not plan to withdraw any funds from my retirement accounts for at least a few years, hoping they will still continue to grow. I may also leave a substantial amount in them in case I need funds for nursing care in my old age.

    Like several commenters already mentioned, everyone’s situation will be different. You should withdraw what you need, and what you feel comfortable withdrawing, but leave a little extra just in case.

    by Irondog — June 3, 2015

  11. Before you begin looking at withdrawals, you need to spend time figuring out what your monthly cash flow will be in retirement (Income minus taxes minus fixed expenses minus discretionary expenses equals Income remaining) vs pre-retirement. Some expenses may go up (medical, travel, etc) some may go down or be eliminated (income taxes or college expenses for your kids). There are plenty of free personal budget spreadsheets on the internet that will help you. If you have income remaining after expenses, congratulations! If not, then you may have to begin withdrawals from your retirement savings accounts before 70.5.

    by stretch — June 3, 2015

  12. The part that I usually don’t see is the need to have a written budget and just live within your means. Now that I am retired, we don’t have the goal to spend all that we have saved before we die. We do have a pension which makes all the difference. We live fine on our pensions and aren’t taking social security yet. Our goals are simple, enjoy life, do the things that we like to do, but certainly not try to spend it all. We know there will be ups and downs in the stock market, but since we don’t need to touch that money, we hope to leave it to our kids. The key is to start planning early in life and work your plan!

    by Bobby — June 3, 2015

  13. Excellent input from everyone. Thank you for sharing your time and thoughts. I have not yet decided on a withdrawal plan but it is good to hear from others on what they think is the best way to handle that.

    by Bob — June 3, 2015

  14. For those lucky enough to have pensions, consider the following approach to determine your annual withdrawal from savings or other retirement accounts.

    First, I believe one should maintain a diversified portfolio across international, growth, income, and bonds to allow for the possibility of a reasonable rate of return. Second, at the end of each year take a look at how much was earned in the prior year and withdraw 50% of that amount leaving the remainder in to enjoy compound growth. This method will leave some of your earnings in the pot and will also maintain principle over the long run.

    According to my analysis, once you accumulate the $1 million to start and assuming a 10% rate of return, you will average a withdrawal of $76,500 for 15 years, with a remaining balance of $2.25 million.

    by Steve — June 3, 2015

  15. So Doug, except for 5 years worth of withdrawals that you have in bonds, do you have the rest in stocks?

    by Larry — June 3, 2015

  16. Check this out: http://www.esplanner.com

    by Ted — June 3, 2015

  17. Congrats to all who commented, many excellent thoughts, For those of us that are lucky enough to have pensions and are collecting Social Security we all seem to have the wisdom of planning our retirement, understanding our expenses and value the concept of budgeting even after retirement. One other thought to consider in retirement if gifting to our children or favorite charity to see that our hard earned $$$ are being used as we see fit. Enjoy it while you can.

    by Ed — June 4, 2015

  18. Always interesting to see how people manage their money. When people work 40, 50 or 60 hours a week they spend 0 hours a week managing their investments. In retirement the time is available to understand and proactively manage investments. I have been writing covered call options (buy stock, sell call options against the stock) which is a great strategy for generating income. It is more conservative than just owning stock (if the stock goes down you don’t lose money unless it goes down more than the amount you received when you sold the option). If you are uncomfortable with picking individual stocks then consider a “fund” like IHI or IHF which allow you to buy a “basket” of stocks (similar to a mutual fund but no front or back fees and trade like a stock) and write a call option against it (the call option will typically generate at least 1% per month). It takes a little work to understand the process but it is worth the time investment. I have been doing this for the past twenty years (retired three years ago at 52). You do have to use a discount broker like Schwab or Interactivebrokers as a regular broker will crush you with transaction charges. It isn’t complicated…. take some time to study it.

    by Jeff Smith — June 4, 2015

  19. It sounds like many of you are blessed! I am happy to say I retired at 48. However, I now have many years to live on our savings. We are still in the first year and figuring out exactly what works. My husband is older than me and will be drawing SS in 2017. We know that these first 3 years will require a little more $$ from our savings but it looks like we’ll level out at about that 4% guideline. Because I am younger, we have a life insurance policy in place in case something were to happen before I reach 59 1/2 where I could use IRA money. Any thoughts on this kind of scenario and back up plan? We try to plan well but I’m always open to new ideas. –Allison

    by Allison — June 4, 2015

  20. Good article here with some other info:

    http://www.marketwatch.com/story/retirement-income-whats-wrong-with-the-4-rule-2012-11-08

    The more information we have, the better prepared we are!

    by Flatearth6 — June 4, 2015

  21. Great discussion and sharing by all…..
    A couple of the respondents made statements regarding leaving remaining $$$ to their “heirs”. My recent experience may be old news to most but it was new news to us regarding the taxation of Trust Funds for heirs. The way our Trust was structured, the recipients would/could be taxed at a flat rate (up to 40%) vs. their individuals’ tax rate. We had our Trust amended to try and avoid such excessive taxation by the government in hopes more of the financial pie will go to our children and not the Uncle Sam. If you are not 100% sure how your Trust fund recipients will be taxed, you may want to review the document with your Trust attorney AND Tax person…Good Luck!!!!

    by DLee — June 4, 2015

  22. What worries me is how few women I see engaged in this conversation. I have been the one that has done the planning in our family but I find that men talk to men, and few women who still have husbands are engaged in the planning and talking. Ladies please understand your money and how it works for you — as well as the effect that your emotions have on your spending — while you still can change your position. We see too many single women trying to find the cheapest places to live instead of what they would love. My husband has a good pension; I have a small one plus residuals from a business I sold. The first 5 years of residuals are higher and allow us to have extra for travel while we can still enjoy it and are physically active. After that the travel budget can be adjusted. I plan on 4% withdrawals plus a couple of large expenses, such as extra funds if we find that we need to move closer to children when we get less independent. I have 3 successful hard working kids. Yes, there will be something left for them — but the best thing I can do for them is to make sure they do not have to spend their vacations trying to deal with my aging problems. That means moving close to them when necessary and taking care of myself until then – financially, socially, health-wise, and spiritually.

    by Carla — June 4, 2015

  23. Steve, Your analysis sounds great. The only thing I question is, where in today’s world can you get a 10% return on your investments?

    by botch57 — June 4, 2015

  24. It looks like everyone on this discussion has the good fortune of having a pension. It is a lot harder to retire as a small business owner who has worked hard for 50 years with only your own IRA and 401k savings plus pay your own medical insurance. So I am very interested in the 4% rule as well as other options. Because that and social security will be all we have to live on.

    by Joy — June 4, 2015

  25. Joy – you and me both. And ditto on health insurance. (Thank heavens for “Obamacare” and its reduced premiums.)

    My husband and I have IRAs and some savings that add up to nowhere near a million dollars, but should be sufficient for us to live fairly well in retirement. We have a paid off house, but no pension. At 63 and retiring next year, we are eligible for SS but not quite sure when we’re going to take it.

    Like you, we find researching strategies to be helpful. (We’re considering something closer to a 3.5% than a 4% rule, which, with whatever is earned on the remaining balance of our savings, will bring us to about 30 years of withdrawals.

    Re the article above, I find it laughable that these financial geniuses presuppose a million dollars in retirement funds, particularly since research shows average Americans to have far less than that in savings when their retirements are imminent.

    Watching our elderly relatives, and being privy to their financial situations, we see that the early part of retirement is typically the healthiest, most travel intensive, most active and expensive portion.

    Leaving our home as an inheritance to our children will be a wonderful financial gift for them to share. More than that doesn’t feel necessary.

    by JCarol — June 4, 2015

  26. Larry,
    Most financial planners talk about 60-40 or 50-50 when it comes to stock & bond allocations. With a stable and COLA adjusted pension + SS we feel very confident in maintaining a larger stock & stock fund allocation. Stock market declines of more than 5 years are rare and as long as we have that 5 year cushion “just in case”, I’m comfortable with our allocations.

    It’s fairly straightforward – when preparing to withdraw your annual funds, if the market is “down” don’t sell any stocks. The money is removed from the bond fund accounts which are much less volatile. If the market is “up” then it’s fine to take your withdrawals from the stock portion of the portfolio. We’re also being conservative by using 3.5% instead of the often quoted 4%. That little bit may make a big difference.

    by Doug — June 4, 2015

  27. For David, I appreciate your concern. We thought long and hard about the annuities. I know the reps get commissions but one acct. is arranged to double our investment after a few years and another we can change the payout if we need to. They are part of our investment plan. We did not dump all our savings into them, but I realized we needed “income” and this was the least painful way for us to make that happen. The “financial guys” we work with primarily, are with a fraternal org. – they get a small commission for helping us every year – not just at the point of sale like other firms.

    We plan to relocate after we retire. If we check in with some place like Prudential, Morgan Stanley, Edward Jones, etc , the new Reps have no relationship with us, thus, no vested interest in explaining things or helping us with our accounts, since we are, obviously, not going to purchase any thing new. However, the guys above will have a vested interest in maintaining a relationship and helping us out along the way.

    by Flatearth6 — June 4, 2015

  28. I reviewed the above comments with great interest. Advice is very easy to give when you have been fortunate enough to have the income, benefit package, retirement package, health, knowledge, etc. My wife and I are very blessed and lucky. We both retired this past year, we both have pensions, my social security, a 401K that I don’t have to draw down on and my wife’s IRA which we don’t have to draw down on. I am very thankful. Now here comes the advice – get as debt free as you can before you retire so that you can, as best as you can, live within your means. My heart breaks for those I see who were not as blessed or as lucky.

    by Irish — June 4, 2015

  29. Some more free advice: Along with being debt free, get over being “morally” or “emotionally” in debt to others like adult children, brothers, sisters, close friends, etc., who always seem to need Dr. Phil’s help. It’s your money and your retirement. You worked your entire life for you. Reasonable generosity and reasonable charity is one thing but, in my opinion, your retirement resources are for your retirement. That’s all the free advice I have. Thanks.

    by Irish — June 4, 2015

  30. We worked hard to accumulate more than a million dollars prior to our retirement. We are also fortunate to have a good pension from my husband’s 22 years of military service. His military retirement also makes it unnecessary to have to purchase Medicare gap insurance or drug coverage so that helps as well. We are basically using the 4% withdrawal method. This year we will be taking more than 4% due to a major vacation that we just returned from. Our FP advised us that many people withdraw more in the early years of retirement due to relocating and travel expenses but that often as people age they travel less and expenses level off and withdrawals become much less than 4%. We are planning to travel as much as we can while still healthy. If all goes well we will enjoy our retirement years and still have some money left for our heirs. I think the important thing is to be willing to adjust to changing times and be flexible in your approach.

    by Kathy — June 5, 2015

  31. Morningstar has published an excellent portfolio construction process using the bucket approach which would assist many investors on how to invest for retirement income. The second article also includes an excel spreadsheet where they back-tested the approach thru the last 15 years, ( 2 bad bear markets ).

    http://news.morningstar.com/articlenet/article.aspx?id=640557

    http://news.morningstar.com/articlenet/article.aspx?id=608619

    by CJB — June 5, 2015

  32. This is an excellent commentary, and I appreciate the perspective that caution is advised, while not summarily banishing the 4 percent guideline. Here’s where I would like some more elaboration, perhaps in a future installment. — but then, you’re sacrificing a lot of future growth and probably not even keeping pace with inflation. I’ll confess I’m confused on this point, but I am leaning toward expanding the scope of my “living expenses” bucket to cover more than a couple of years.

    by Kati Sprewell — June 6, 2015

  33. Something I don’t see anyone else having a problem with, different accounts with different tax handling. Everything I read here assumes all your retirement savings is in one account. That makes the 4% work.

    What about when my wife has a Roth and a IRA as do I. We also have an after tax savings account. RMD only applies to the IRA accounts. You can’t withdraw (tax free) from Roth until 5 years after last

    This combination of accounts has made for a very worrisome time on how to make it all work out for us. The pre-tax accounts approximately equal the after tax, so I decided to make it work as follows.

    Pre-tax(IRA and Roth accounts) take RMD as required and otherwise, don’t touch the principal with it invested mostly in very diversified group of ETFs.

    After tax is invested in pretty high dividend stocks. Withdrawing the dividends plus Social Security plus a miniscule pension almost hits our pre-retirement income. Extra expenses, travel, etc come from this account and I expect it to gradually decline, but it will be many years before we have to start withdrawing from pre-tax accounts, if ever.

    by Clarence — June 6, 2015

  34. One of my problems with the 4% rule is that it contemplates a 30 year retirement…and if you retire at 66 or so, that anticipates that your assets are being stretched to 96. Seems optimistic to me. I want to use 25 years instead. If I’m still around at 90, those lazy bum kids of mine (just kidding) can help pay for my gruel and Depends.

    by Kate — June 6, 2015

  35. Clarence, we are using 4% of our total assets but currently withdrawing from our non IRA account. When we have to start our RMDs in a few years we will use that towards the 4% and pull from the other account if necessary.

    by Kathy — June 7, 2015

  36. For what it’s worth, here are my two cents worth. I think some folks get confused by the 4% rule. It is simply a guideline. It came about through calculations and Monte Carlo simulations that showed by taking no more than 4% of your assets, with yearly increases for inflation, your likelihood of outliving your assets was negligible. The real calculation all of us retirees and future retirees need to make is what are our expenses in retirement. Will you spend more on some activities such as travel and vacations? You will probably spend more on health care than when you were younger and working. Once you’re retired you won’t be spending on transportation to and from work, clothing used primarily for work, and numerous other expenses. Once you know what your expenses are and your sources of income you can create a retirement budget.

    You may find that your expenses are covered by Social Security and/or a pension, in which case you don’t need to tap your assets. With a traditional IRA and a 401k you will have to take RMD’s at age 70.5. With a taxable investment account you may have accumulated enough to just live off the dividends and interest and not need to sell any investments. A Roth IRA never requires you to take distributions, so you can leave it to your heirs if you wish. It is also helpful with unexpected one-time expenses. If you have an unexpected expense (medical, household, etc) you can take funds from your Roth to cover the expense and not risk being bumped into a higher tax bracket. Even with a taxable account you can often offset capital gains with capital losses, or at least if you don’t have losses your capital gains are taxed at a lower rate than ordinary income.

    It can get to be a bit of a juggling act figuring which pots to take funds from, but that’s life. Very little is certain or guaranteed. And if you’re uncertain how to make these decisions yourself, you can always consult a financial advisor. Just make sure his/her interests are aligned with yours.

    by Leonard — June 7, 2015

  37. I worked for many years in the financial services industry (but as an IT geek) and learned a lot about investing while there. As we started planning retirement, the biggest issue was the difference between my husband and me for risk tolerance. While you will start drawing money out of your portfolio in retirement, you still need to have the bulk of the portfolio continuing to give you good returns, as you may have anywhere from 20-40 years of retirement. Any money you do not need for at least 10 years is “long term” and should be invested more aggressively than the money you need for the shorter term. I think a diversified portfolio is a must, as has been mentioned. Another idea my registered financial adviser pointed out was to have our fixed costs covered by fixed money coming in, e.g. Social Security, pensions, annuities, etc.This plan allows us to feel confident that our basic “necessities” are covered and that the discretionary spending will be tied more to what is happening with our portfolio over time. There are some annuities that grow with inflation, and allow you to change the start of the payout once without a penalty. But the annuities are only a small part of the solution in our plan. You also must take into account your expected life span – if you come from a long-lived family, you should assume (barring any existing health issues) that you are likely to live to age 90. There are many retirement calculators from firms like Fidelity, Schwab, Wells Fargo, and even publications like Money. These calculators can give you a good sense, if you are honest with the data you input, and your market assumptions. It’s better to calculate assuming a modest gain in the market (say 5%) and know your money will last, than to give yourself a false sense of security by assuming 20+ years of double-digit returns.

    by Mary-Elizabeth — June 7, 2015

  38. Clarence,
    We’ve got ours spread across 3 accounts with sub portions in taxable & non-taxable. So when it’s time to withdraw, it’s a matter of determining how much and then it’s a bit of a balancing act to decide where to take it from. I may be a little more spread out than most (20 individual stocks & 20 mutual funds covering different asset classes) but I enjoy keeping up with it and usually tap a little here and a little there.

    I spent my working life as an analyst so running the numbers and doing comparisons is fun for me. Maybe not so much for others… Haha…

    by Doug — June 7, 2015

  39. One man’s ceiling is another man’s floor. I say this because no one talks specifics on what is a “sizeable” amount of retirement savings. But I will…stating that my husband I currently have $550K in retirement savings in our 401(k) accounts. We’re still working full time, and expect to retire in 3 years, when I’m 66 and he is 65. Our projected retirement savings will be $675K by then, and we anticipate to receive $4500 a month (before taxes) in Social Security. That’s it. Are we doomed?? Will we be able to scrape by? The calculator on my husband’s 401(k) account estimates we will have $8000 per month income, including the SS payments, till he’s 90. Comments?? thank you!

    by KathyS — June 9, 2015

  40. I’m at $750K in a 401K, and may be laid off at any time. If I don’t get laid off, I’ll hit that $1M in cash and 401K. I plan on waiting to take S.S. until 66, and have money put away to cover my living expenses if I get laid off. I will get $2350 or so in S.S. The brokerage retirement calculations say I’ll have about $58-$63K to live on at 66, so they’re pretty consistent with the calculations that you’ve gotten. If you won’t have a mortgage or debt by the time you retire, I think you’ll be fine. Let me rephrase that — I hope you’ll be fine, because I’m going to be in almost the same boat. It will depend on where you live, obviously. It will also depend on your expenses. It wouldn’t be enough to live comfortably in expensive places, and cover daily greens fees and monthly cruises, but there are plenty of places with reasonable costs of living too. It would be nice if TopRetirements had a blog where people can talk about their prospective retirement budgets and for retirees to report on how their budgets are actually working out. Yeah, this is very personal but on the other hand we’re all desperate for data.

    by Kate — June 10, 2015

  41. Kate, here is a budget that works for me & my wife. $54,000 annually, ($4,500 monthly) one caveat, this does not include our monthly rent since we just sold our home and use the investment proceeds from the sale to pay our rent. this should still work if you own your home, debt free. We live very comfortabley using these percents.
    Auto expenses 10% (lease pay’t, gas & insurance), Personal expenses, 15.5 % (cash , clothes, beauty stuff , etc)
    Utilities 11%, (electric, water, cell , storage) Food 7.8 % (groceries, wine) Dining 12%, (dining out 2x a week)
    Travel, Entertainment 19.5 % ( airfare, lodging, 2-3 trips a year) Healthcare 13.3 % (health premiums & copays)
    Insurance 2.5 % (life ins, rental ins) Charity 2.2 %, Fed Taxes 6.2%. (pension only). Any additional Fed taxes are paid from our investment income which generates the additional tax liability.
    As everyone has previously stated, you need to know how you are spending your money so you can budget properly , good luck

    by Ed — June 10, 2015

  42. thank you, Ed and Kate, for sharing your stories…very helpful, and encouraging! Our current financial situation is far from great though. We live in NY, land of high taxes and high everything, with a monthly mortgage payment of nearly $3K (including our $11K annual property taxes on the house) for another 20 years!!–so the house has to go. We also unfortunately have substantial debt on top of that–close to $50K–which we’re working hard towards reducing by the time we retire in 3 years. If the debt is still high, we’ll have to pay it off with the equity we get when we sell the house. We can’t stay here in NY in retirement…and really don’t want to bear these awful winters anymore. We’re on Long Island, and love the beaches we have here (the only real thing Long Island has going for it!!), so are planning to retire in the Tampa, FL area. We’ve made a trip in March to Sun City Center in Tampa, and found that the 55+ community has a vast offering of housing at virtually all price points. We’re pretty confident we can find something in Sun City–but are also grappling with the mortgage issue. i.e., should we pay cash for a house/condo in Sun City with our 401(k) money…or apply for a mortgage? There’s so much to think about, that it totally stresses me. I know we should be working with a financial advisor, but the whole process of trying to find a reputable advisor is another stressor. Oh boy, as that old TV commercial used to say, “Calgon…take me away!!” Thanks, everyone, for your perspectives. Keep the comments/advice coming!! We need HELP!!!

    by KathyS — June 10, 2015

  43. Kathy, interesting we live in downtown St. Petersburg, (we relocated from NJ because it’s expensive to live there also) We love the downtown setting, we can walk everywhere, keeps us young and vibrant, we only need one car. Beaches are close by, always something going on here. One thing to seriously consider is renting, why do you need the hassle of home ownership, start to enjoy your planned retirement, Travel etc, we reduced our living expenses by $1,000 a month by not owing, no real estate taxes, no homeowners insurance, less electric, water, home maintenance. Invest your home equity to use the interest to pay your rent, it’s a lifestyle change but something to consider.
    Your asking the right questions but need to make some lifestyle decisions but take your time and think them through.
    Another thought highly recommended is rent for 6 months no matter where you re-locate to , make sure you love it before you consider buying.

    by Ed — June 10, 2015

  44. Ed – Thank you! Very good info! Are you in FL or one of the other states without a state tax? Your utility costs seemed extremely reasonable to me…I guess I’m going to have to learn to be more careful with my thermostat :-).

    Kathy: I remember when I moved away from NY/CT 30+ years ago. It was like getting a 25% raise, and I didn’t even relocate to one of the really low cost states. Hard to imagine how anyone can retire there, and it’s very understandable FL is full of retired New Yorkers! I’ve looked at Sun City Centre online, and it seems to offer a lot of options.

    by Sharon — June 11, 2015

  45. KathyS, Do you or your husband have any $ invested with TIAA-Cref (403B’s and 401K’s for those related to the educational field). If so, as long as you have a certain amount invested (sorry, i don’t remember the number),you can arrange for someone to come to your home to discuss your financial situation even if most of your money is invested with another company. They have a reputation as being conservative and extremely reliable. Fiduciary responsibility to their clients and much more. I have been VERY HAPPY with our adviser, and she costs us nothing. (I know people will respond and say i’m paying internally, that nothing is free. However, this is just one of TIAA-Cref’s services to their clients.) I can turn to her with any question and receive a caring, insightful reply. Look them up and see what you think. By the way, you can schedule a meeting even if you have no $ invested with them. I don’t know if there’s a fee for this or not. My best to you!

    by ella — June 11, 2015

  46. Sharon , I’m in downtown St.Petersburg, FL , which is only 40 miles from Sun City Centre, the St. Pete beaches are only 15 minutes away. I know Sun City Center is a retirement haven, but make sure you check it out and understand how much you have to drive to get to other places. I prefer to be in the downtown where i can walk to everything or bike if I want.

    by Ed — June 11, 2015

  47. Kathy,
    I would not use 401k money to purchase a house. You would probably go into a higher tax bracket and owe even more in taxes. I agree with Ed that renting might be a good option. Its always good to rent until your sure that this is the place you want to stay.

    by Jim C — June 11, 2015

  48. Kathy, I also agree with Jim C, don’t use your 401k to buy a house. Based on the numbers you provided you would save over $48K or more annually in living expenses by selling you home. If you rented for $2,000 a month you would still save $25K year and get rid of you debt in 2 years, a no brainer for me.

    by Ed — June 11, 2015

  49. After calculating that my large home was costing me about 4K a month, I sold it. Now doing anything, anywhere I want. Ah, the gypsy life for me. Until it’s not. I’ll think about that tomorrow.

    by Sallie50th — June 12, 2015

  50. Ed – Can you share why you decided on St. Petersburg vs. other cities in Florida? While I also prefer city living, I’m concerned that it may be more difficult to meet new people in the city vs. a planned community. I also love recreational biking and it appears St. Pete’s has created downtown bike lanes. I appreciate your comments.

    by linda — June 13, 2015

  51. Linda, we wanted an urban downtown setting, we picked St. Petersburg for the following reasons, vibrant downtown area, we can walk to everything, variety of great restaurants, waterfront area you walk and bike on, downtown parks, every weekend their is some type of activity going on downtown, (music, festivals, Saturday market), Dali museum, Mahaffey theatre, USF college, walk to Tampa Bays Rays game & Tampa Bay Rowdies soccer team, 20-30 minutes drive to St. Pete, Passe-a-Grille or Fort DeSoto beaches, Sarasota is 1 hour away, downtown Tampa Bay is 30 minutes, Tampa airport is 20 minutes, St. Anthony’s Hospital. Finally, we wanted to be only a 45 minute drive from family that still live in New Port Richey.

    by Ed — June 14, 2015

  52. Ed, The area and lifestyle sound great Thank you for sharing.

    by linda — June 16, 2015

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