It's an unfortunate fact that many seniors enter retirement with little to no money socked away. It's therefore encouraging to hear that in a recent study by Ameriprise Financial, the median savings level among retirees was $839,000 -- not too shabby a figure. But while you'd think that sort of savings balance would put retirees at ease with regard to spending their money, Ameriprise also found that 68% of them have yet to start withdrawing money from savings aside from the required minimum distributions (RMDs) they have no choice but to take.

Now, on one hand, it's good to see retirees being somewhat conservative and frugal. On the other hand, for many, it's a fear of running out of money that keeps them from accessing the savings they've worked hard to accumulate -- and deserve to enjoy.

Senior couple doing a puzzle


Are you afraid of depleting your nest egg?

Running out of money in retirement is a very legitimate fear, especially given the fact that seniors are living longer these days than ever before. In fact, the Social Security Administration estimates that one in four seniors 65 and over will live past age 90, while one in 10 will live past 95. And that means that workers who ended their careers in their early to mid-60s could easily be facing a 30-year retirement or longer.

Now, thankfully, there's a good way to lower your chances of depleting your nest egg prematurely, and it's to establish a smart withdrawal rate for accessing your savings. For years, 4% was the gold standard as far as that withdrawal rate goes. In fact, countless financial experts swear by the 4% rule, which states that if you begin by removing 4% of your savings during your first year of retirement and then adjust subsequent withdrawals for inflation, there's a very strong chance your nest egg will last for 30 years.

There are, however, some problems with the 4% rule. For one thing, it assumes a fairly even mix of stocks and bonds, which not every portfolio has. Secondly, it was established at a time when bond interest rates were considerably higher than what they are today, which means that you won't see the same level of investment growth as savers did 25 years ago. Finally, the rule is designed to make your savings last for 30 years, but if you retired early -- say, in your 50s -- you'll need to do better than that.

The solution, therefore, is to use the 4% rule as a benchmark, but adjust that figure depending on your personal circumstances. If you are heavily invested in bonds, and you did retire on the early side, then you're probably better off starting out with a 3% annual withdrawal rate, or even 2%. Similarly, if you have other income streams in retirement, like rental income or earnings from a part-time job, then you don't need to tap your nest egg quite as heavily -- you might as well withdraw the minimum you can get away with each year (which could mean taking your RMD and leaving things at that).

On the other hand, if you retired in your mid-70s, you might get away with a slightly higher annual withdrawal rate than 4%. That's because your chances of living to 105 are somewhat slim so you don't necessarily need your savings to last 30 years.

It never hurts to be conservative with your retirement plan withdrawals, because you never know what expenses you might face in the future or what the market has in store. Just don't let your fear of running out of cash reserves prevent you from enjoying the money you worked hard to save -- especially if you managed to enter retirement with a decent sum to begin with.

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