If you have a nest egg, but are now worries that it may not last, do not stress? Here are some great tips to make your money last as long as you need! Get the information here!
The idea of running out of money late in life, when your ability to do anything about it is all but gone, is a scary one to ponder. Fortunately, even if you’re already retired, there are some things you can do to improve your chances of avoiding that fate.
No matter the size of your nest egg, have a plan to draw it down
Most folks — at least those savvy enough to be reading the Fool — eventually get serious about saving for retirement. If you started early and were able to sock away several million dollars, you’re probably not too worried about blowing through it all. You probably have enough money (and enough self-discipline after all that saving) to ensure that you’ll be set for the remainder of your life without too much worry.
But even for those people — and for the many more who don’t have millions stashed away — a disciplined approach to drawing down your retirement nest egg makes sense. As the Fool’s resident retirement guru, Robert Brokamp, notes in the new issue of the Rule Your Retirement newsletter, one of the most common recommendations is to withdraw 4% of your nest egg annually, adjusting it upward to keep pace with inflation.
It’s a common recommendation, but does it really work?
A simple plan, but don’t get tripped up
Here’s the short answer: It can, as long as you understand the assumptions it’s based on and what it’s intended to achieve. Many different studies have been done, and while recommendations vary, 4% is a rough average — and a good place to start.
But that recommendation comes with a few assumptions:
- A 30-year retirement. For most people retiring between ages 65 and 70, 30 years is a reasonable expectation. But if you’re retiring early, or if your grandparents are still hale and hearty at age 112, you might want to consider a more conservative approach.
- Mr. Market will cooperate. A protracted bear market, or an extended period of high income rates that crush bond returns, could make outliving your income a grim possibility. Most studies are based on a “market average” return that looks at the market’s recent history; an extended period of returns below that average could be a problem.
- Your fees are very low. This is a big one. Let’s take a closer look.
Lots of people retire with their nest egg spread among several of the mutual funds from their longtime employer’s 401(k). That’s not necessarily bad: If your holdings are well-diversified and growing, you could do a lot worse.
But the fees on actively managed mutual funds can eat away at your savings. Look atFidelity Contrafund (FCNTX), a great fund that is a mainstay growth option in many 401(k) plans. It has beaten the S&P 500 Index by a bit over the last three years, returning about 15.7% to the market’s 14.9% through May 31. But investors have paid for that little bit of performance: Contrafund’s expense ratio is 0.81%, versus the 0.17%that investors pay withVanguard 500 Index Fund (VFINX).
Get more information at Fool.com!