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What Can I Afford to Spend in Retirement?

One of the most important questions I’m often asked by clients is how much can they spend from savings each year without running of money too soon.

An exercise I like to run clients through in the initial financial planning stages is determining what their withdrawal rate is. A withdrawal rate is the estimated portion of money being withdrawn from the investments each year. For example if you spend $90,000 per year and have $1,000,000 of assets invested you would have an initial withdrawal rate of 9%.

A 1994 study by now-retired financial planner William Bengen indicate that a 4% withdrawal rate was the highest withdrawal rate retirees could use if they wanted their money to last at least 30 years (assuming at least 50% of their portfolio was invested in stocks). 

With today’s low interest rates and volatility in the stock market, many experts have determined that an inflation-adjusted withdrawal rate of just under 3% rather than 4% correlates to approximately 90% chance that their savings will last 30 years.  

Although there is little consensus in the financial planning industry on the ideal withdrawal rate in retirement, a general withdrawal rate between 3% and 4% will make it likely that your funds will last through retirement. Anything above this rate brings in other questions such as the rate of return on investments, the path of inflation, and life expectancy. 

Each situation is different and there are a lot of variables to consider. Our Retirement Planner services will help you understand your financial picture, goals, and what you can do now to have the retirement you deserve. Call me at 403.382.6800 to set up an appointment to get started.

Retirement planning spending
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