Running out of money during retirement is a truly scary thought -- so much so that almost 67% of Americans worry more about that than actually dying, according to a study by Allianz Life.
If you're concerned about depleting your nest egg, you might assume that the solution to that problem is to save more. But that's not necessarily the answer. If you want your savings to last, you need to figure out a withdrawal rate that gives you access to the funds you need to pay your expenses without tapping your 401(k) or IRA too aggressively.
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It's all about striking the right balance
For many years, financial experts swore by the 4% rule in the context of managing a nest egg. The rule has you withdrawing 4% of your savings balance during your first year of retirement, and then adjusting subsequent withdrawals for inflation.
It's a system that may work for some retirees, and you can and should use it as a starting point. But it's not guaranteed to work for you.
If you want your savings to last, a better bet is to create a retirement budget so you're able to see how much annual income you need to live comfortably. You may, in fact, want to create two versions of that budget -- your optimal one and your acceptable one, in case the former isn't attainable.
From there, see how much of your savings you'll need to withdraw annually to meet your expenses. If that number is considerably higher than 4%, you may need to scale back on spending. If it's a lot lower, you may have more wiggle room to spend on things you enjoy.
It's also a good idea to enlist the help of a financial advisor when running your numbers and landing on the optimal savings withdrawal rate. You may get more peace of mind knowing that a professional has weighed in on the decision, and you didn't just get there alone.
