Saving for a comfortable retirement is what motivates many people to start their wealth management planning regimen. Whether you’ve been planning for retirement since you were 25 or 50, saving is only half the battle; after retirement, the real work begins. With your primary source of income gone, you have to figure out how to make your retirement fund last. That’s not as easy as it sounds.

1. Title: What WithdrawalRate Will Make the Mostof Your
RetirementFund?
Author: John Whitefoot, http://www.dailygainsletter.com/
Body
Saving for a comfortable retirement is what
motivates many people to start their wealth
management planning regimen. Whether you’ve
been planning for retirement since you were 25 or
50, saving is only half the battle; after retirement,
the real work begins. With your primary source of
income gone, you have to figure out how to make
your retirement fund last. That’s not as easy as it
sounds.
In 2008, at the beginning of the financial crisis, Metropolitan Life conducted a survey
asking people who were about to retire on their 401(k) plans what they thought a safe
withdrawal amount would be. The answer, on average, was about 10% annually.
That number might have made sense years ago, when interest rates were high and
retirees could bank on making money on fixed-income investments like Treasuries. But
today, 30-year Treasuries are paying just 2.8% annually, and 10-year Treasuries offer a
lowly 1.66%.
Interestingly, not even the financial crisis got people thinking more seriously about
retirement withdrawal rates. In a 2011 Fidelity Investments survey, the mean annual
withdrawal rate came in at a solid 8.4%; but the answers were all over the place, ranging
from a conservative one percent to a no-holds-barred 25%.
In lieu of a one-percent, 10%, or 25% annual withdrawal rate, many advisors have been
telling their clients that four percent is a safer number (adjusted for inflation). But is that
sustainable? One study showed that an inflation-adjusted withdrawal rate of more than
five percent significantly increased one’s risk of wiping out their retirement savings.
The following chart shows how long a hypothetical $500,000 retirement portfolio
(containing 50% stocks, 40% bonds, and 10% short-term investments) fared from 1972
to 2011 with various inflation-adjusted withdrawal rates between four percent and 10%.

2. Chart copyright © Lombardi Publishing Corporation, 2013;
Data source: Fidelity Investments, April 30, 2013.
As you can see, the risk of running out of retirement money is very real, and a
withdrawal rate of five percent or more can increase the risk of coming up short. That
doesn’t mean a four-percent annual withdrawal rate guarantees long-term success.
Withdrawal rates have to take a number of different factors into consideration, including
market performance, asset allocation, age, and health.
Granted, there is no magic number, but using a withdrawal rate of four percent can help
those nearing or already in retirement get a clear understanding of what they should be
striving for. And it’s not a bad starting point; new research suggests that an initial
withdrawal rate of four percent in today’s low, low interest rate environment can lead to a
50% probability of success over a 30-year period. (Source: Blanchett, D., et al., “Low
Bond Yields and Safe Portfolio Withdrawal Rates,” Morningstar Investment Management
web site, January 21, 2013, last accessed April 30, 2013.)
While you can’t control the markets, you can control the amount you save over time and
your withdrawal rate. And it’s a balancing act of not just making your retirement fund last
longer than you, but of also enjoying retirement. It’s one thing to spend wisely; it’s
another to be too frugal.
Source: http://www.dailygainsletter.com/retirement/what-withdrawal-rate-will-
make-the-most-of-your-retirement-fund/759/
Copyright © 2013 Daily Gains Letter – All Rights Reserved

3. Bio:
The Daily Gains Letter provides independent and unbiased research. Our goal at the
Daily Gains Letter is to provide our readership with personal wealth guidance, money
management and investment strategies to help our readers make more money from their
investments.