Rival Theories to The 4% Withdrawal Rule Keep Popping Up

I'd like to see some discussion on how to withdraw retirement savings when you also have a pretty substantial pension payment as well. Combined with Social Security, my wife and I would be able to retire fairly comfortably just on my pension payment alone, (which is partially inflation protected). My IRA savings are really just gravy and I really don't believe we have to worry too much about drawing it down too quickly. Is anyone else in this scenario? Thoughts?

Alll my retirement money comes from Soc Sec, pension, & RMD. I don't get to choose how much.

Fred. I'm in your same situation. Its frustrating to see these low withdrawl rates. I say, spent it when we are healthy. Happy retirement!

Fred,
We're lucky enough to be in the same boat as you are & very grateful to be so blessed. Our portfolio provides for vacation income and front loads our checking account for the year.

We are using a combination "bond ladder" and 3.5% withdrawal rate to manage withdrawals. Withdrawals are taken from the stock portfolio during "good" years and if the market takes a dive the bond ladder, which contains 5 years worth of withdrawals, will be the source of income. If necessary, we'll replenish the bond ladder when the market recovers. I retired in 2011 and so far no problems.

We realize that we're very lucky to be in such good shape, but then again over the years I've realized that the harder I worked, the luckier I got.

After years of savings and watching the balances inch up I know I will have a hard time taking the money out. We sat with the financial guys and tried to come up with a list of expected expenses and tried to guess high. That was an interesting exercise as we hadn't really thought about what we'll have to spend. Which is why we set up a couple of annuities. That way, it will still feel like we're getting a paycheck and, along with Soc. Sec., we can budget around that, leaving other savings and investments for special trips or occasions.

The 4% Rule and all the other rules are mainly meant to be guidelines. All financial planning is based on the specifics of the particular situation. You can see this from some of the previous comments. For each situation there are many factors but it really should be needs based to begin and then do you want to try to leave something to heirs.

For this subject there is also the question of whether your 'retirement funds' are post or pre-tax savings, or a combination. There are various tax implications for what you withdraw, particularly if you have additional income like pensions or social security. For example, if you have pre-tax (like IRA) funds then you get taxed at regular income rates rather than capital gains rates. Unless the tax law changes you will be required to begin withdrawals of those IRA's at 70 1/2 anyway. So depending on how old you are you may want to look at the impact of beginning sooner than later from a tax perspective. These kind of strategies only really matter if you have substantial assets in these accounts and probably other income to boot.

The bottom line is there is no 'one size' fits all. Guidelines are just that. It is difficult to use a simple solution to a complicated topic and feel you will know what to do. In addition you really need to look at things at least annually so you can adjust as necessary. There are many other aspects I haven't mentioned but I always get a little worried when simplified approaches don't also expand on the complexity of this kind of topic so folks will at least dig a bit deeper. I'm glad to see the moderator mentions this at the end. Good advice. My 2.5 cents.

i have to agree fully with MEJASK. the 4% rule is a guideline we all can consider. it may or may not fit every ones financial situation. the story is complex and expert advice is highly recommended. my wife and i will make our initial choice by AUGUST 2015, subject to modification down the road. good luck to all.

Flatearth6, it's too bad you bought the story of the "financial guys". Buying fixed annuities, regardless of when they start, is one of the worst financial decisions people can make. The agent gets a big commission and the customer gets a non-inflation adjusted income, which is always a poor option in retirement. And it's generally an irrevocable election. Stay away from commissioned sales people. There is no professional objectivity when the only way you make a living is by selling somebody something.

Great comments, Majask.

As Majask mentioned this too complicated a subject for one size fits all fix.

Many people do not have a pension available to them, and if the have one, not one that will cover expenses. I like the idea from Flatearth6 of protecting a portion of investments in annuities. What I don't like about them is they are more of an insurance policy and cost the retiree, dearly if they don't live long or need the money earlier than expected. Fred, it would wonderful if everyone had your situation. I'm working on being one of those lucky ones to live off the pension and use investments for fun.

Good luck to everyone here. I love hearing about other's situations and learn from them. Thank you. -AJ

Excellent comments all. Fred, I'm in the same boat as you are, except I just retired a few months ago, and although my pension is not "substantial" in my opinion, it is more than adequate. I invested heavily in my retirement accounts for about the last twenty years of my working life, so my net pension is actually more than my net take home pay was when I worked because I no longer have the withdrawals for my retirement accounts. That was the key to my retirement date - having at least as much net pension pay as my net take home pay was. And I'm still a few years away from drawing Social Security. That, plus my retirement accounts are basically just play money. The plan is to have enough money to live until the day I die, but to also spend it all by the day I die.....;o)~

The 4% rule is still a valid guideline. Even if your retirement accounts don't earn a penny, it will still last 25 years if you only withdraw 4% per year and do not adjust for inflation. The markets will still go up and down over time, and they have always shown to bounce back after pulling back every few years. One of my keys for inflation adjustments is to move to a state with a lower cost of living, which I plan to do in a couple of years. I also do not plan to withdraw any funds from my retirement accounts for at least a few years, hoping they will still continue to grow. I may also leave a substantial amount in them in case I need funds for nursing care in my old age.

Like several commenters already mentioned, everyone's situation will be different. You should withdraw what you need, and what you feel comfortable withdrawing, but leave a little extra just in case.

Before you begin looking at withdrawals, you need to spend time figuring out what your monthly cash flow will be in retirement (Income minus taxes minus fixed expenses minus discretionary expenses equals Income remaining) vs pre-retirement. Some expenses may go up (medical, travel, etc) some may go down or be eliminated (income taxes or college expenses for your kids). There are plenty of free personal budget spreadsheets on the internet that will help you. If you have income remaining after expenses, congratulations! If not, then you may have to begin withdrawals from your retirement savings accounts before 70.5.

The part that I usually don't see is the need to have a written budget and just live within your means. Now that I am retired, we don't have the goal to spend all that we have saved before we die. We do have a pension which makes all the difference. We live fine on our pensions and aren't taking social security yet. Our goals are simple, enjoy life, do the things that we like to do, but certainly not try to spend it all. We know there will be ups and downs in the stock market, but since we don't need to touch that money, we hope to leave it to our kids. The key is to start planning early in life and work your plan!

Excellent input from everyone. Thank you for sharing your time and thoughts. I have not yet decided on a withdrawal plan but it is good to hear from others on what they think is the best way to handle that.

For those lucky enough to have pensions, consider the following approach to determine your annual withdrawal from savings or other retirement accounts.

First, I believe one should maintain a diversified portfolio across international, growth, income, and bonds to allow for the possibility of a reasonable rate of return. Second, at the end of each year take a look at how much was earned in the prior year and withdraw 50% of that amount leaving the remainder in to enjoy compound growth. This method will leave some of your earnings in the pot and will also maintain principle over the long run.

According to my analysis, once you accumulate the $1 million to start and assuming a 10% rate of return, you will average a withdrawal of $76,500 for 15 years, with a remaining balance of $2.25 million.

So Doug, except for 5 years worth of withdrawals that you have in bonds, do you have the rest in stocks?

Check this out: www.esplanner.com

Congrats to all who commented, many excellent thoughts, For those of us that are lucky enough to have pensions and are collecting Social Security we all seem to have the wisdom of planning our retirement, understanding our expenses and value the concept of budgeting even after retirement. One other thought to consider in retirement if gifting to our children or favorite charity to see that our hard earned $$$ are being used as we see fit. Enjoy it while you can.

Always interesting to see how people manage their money. When people work 40, 50 or 60 hours a week they spend 0 hours a week managing their investments. In retirement the time is available to understand and proactively manage investments. I have been writing covered call options (buy stock, sell call options against the stock) which is a great strategy for generating income. It is more conservative than just owning stock (if the stock goes down you don't lose money unless it goes down more than the amount you received when you sold the option). If you are uncomfortable with picking individual stocks then consider a "fund" like IHI or IHF which allow you to buy a "basket" of stocks (similar to a mutual fund but no front or back fees and trade like a stock) and write a call option against it (the call option will typically generate at least 1% per month). It takes a little work to understand the process but it is worth the time investment. I have been doing this for the past twenty years (retired three years ago at 52). You do have to use a discount broker like Schwab or Interactivebrokers as a regular broker will crush you with transaction charges. It isn't complicated.... take some time to study it.

It sounds like many of you are blessed! I am happy to say I retired at 48. However, I now have many years to live on our savings. We are still in the first year and figuring out exactly what works. My husband is older than me and will be drawing SS in 2017. We know that these first 3 years will require a little more $$ from our savings but it looks like we'll level out at about that 4% guideline. Because I am younger, we have a life insurance policy in place in case something were to happen before I reach 59 1/2 where I could use IRA money. Any thoughts on this kind of scenario and back up plan? We try to plan well but I'm always open to new ideas. --Allison

Good article here with some other info:

http://www.marketwatch.com/story/retirement-income-whats-wrong-with-the-4-rule-2012-11-08

The more information we have, the better prepared we are!

Great discussion and sharing by all.....
A couple of the respondents made statements regarding leaving remaining $$$ to their "heirs". My recent experience may be old news to most but it was new news to us regarding the taxation of Trust Funds for heirs. The way our Trust was structured, the recipients would/could be taxed at a flat rate (up to 40%) vs. their individuals' tax rate. We had our Trust amended to try and avoid such excessive taxation by the government in hopes more of the financial pie will go to our children and not the Uncle Sam. If you are not 100% sure how your Trust fund recipients will be taxed, you may want to review the document with your Trust attorney AND Tax person...Good Luck!!!!

What worries me is how few women I see engaged in this conversation. I have been the one that has done the planning in our family but I find that men talk to men, and few women who still have husbands are engaged in the planning and talking. Ladies please understand your money and how it works for you -- as well as the effect that your emotions have on your spending -- while you still can change your position. We see too many single women trying to find the cheapest places to live instead of what they would love. My husband has a good pension; I have a small one plus residuals from a business I sold. The first 5 years of residuals are higher and allow us to have extra for travel while we can still enjoy it and are physically active. After that the travel budget can be adjusted. I plan on 4% withdrawals plus a couple of large expenses, such as extra funds if we find that we need to move closer to children when we get less independent. I have 3 successful hard working kids. Yes, there will be something left for them -- but the best thing I can do for them is to make sure they do not have to spend their vacations trying to deal with my aging problems. That means moving close to them when necessary and taking care of myself until then - financially, socially, health-wise, and spiritually.

Steve, Your analysis sounds great. The only thing I question is, where in today's world can you get a 10% return on your investments?

It looks like everyone on this discussion has the good fortune of having a pension. It is a lot harder to retire as a small business owner who has worked hard for 50 years with only your own IRA and 401k savings plus pay your own medical insurance. So I am very interested in the 4% rule as well as other options. Because that and social security will be all we have to live on.

Joy - you and me both. And ditto on health insurance. (Thank heavens for "Obamacare" and its reduced premiums.)

My husband and I have IRAs and some savings that add up to nowhere near a million dollars, but should be sufficient for us to live fairly well in retirement. We have a paid off house, but no pension. At 63 and retiring next year, we are eligible for SS but not quite sure when we're going to take it.

Like you, we find researching strategies to be helpful. (We're considering something closer to a 3.5% than a 4% rule, which, with whatever is earned on the remaining balance of our savings, will bring us to about 30 years of withdrawals.

Re the article above, I find it laughable that these financial geniuses presuppose a million dollars in retirement funds, particularly since research shows average Americans to have far less than that in savings when their retirements are imminent.

Watching our elderly relatives, and being privy to their financial situations, we see that the early part of retirement is typically the healthiest, most travel intensive, most active and expensive portion.

Leaving our home as an inheritance to our children will be a wonderful financial gift for them to share. More than that doesn't feel necessary.

Larry,
Most financial planners talk about 60-40 or 50-50 when it comes to stock & bond allocations. With a stable and COLA adjusted pension + SS we feel very confident in maintaining a larger stock & stock fund allocation. Stock market declines of more than 5 years are rare and as long as we have that 5 year cushion "just in case", I'm comfortable with our allocations.

It's fairly straightforward - when preparing to withdraw your annual funds, if the market is "down" don't sell any stocks. The money is removed from the bond fund accounts which are much less volatile. If the market is "up" then it's fine to take your withdrawals from the stock portion of the portfolio. We're also being conservative by using 3.5% instead of the often quoted 4%. That little bit may make a big difference.

For David, I appreciate your concern. We thought long and hard about the annuities. I know the reps get commissions but one acct. is arranged to double our investment after a few years and another we can change the payout if we need to. They are part of our investment plan. We did not dump all our savings into them, but I realized we needed "income" and this was the least painful way for us to make that happen. The "financial guys" we work with primarily, are with a fraternal org. - they get a small commission for helping us every year - not just at the point of sale like other firms.

We plan to relocate after we retire. If we check in with some place like Prudential, Morgan Stanley, Edward Jones, etc , the new Reps have no relationship with us, thus, no vested interest in explaining things or helping us with our accounts, since we are, obviously, not going to purchase any thing new. However, the guys above will have a vested interest in maintaining a relationship and helping us out along the way.

I reviewed the above comments with great interest. Advice is very easy to give when you have been fortunate enough to have the income, benefit package, retirement package, health, knowledge, etc. My wife and I are very blessed and lucky. We both retired this past year, we both have pensions, my social security, a 401K that I don't have to draw down on and my wife's IRA which we don't have to draw down on. I am very thankful. Now here comes the advice - get as debt free as you can before you retire so that you can, as best as you can, live within your means. My heart breaks for those I see who were not as blessed or as lucky.

Some more free advice: Along with being debt free, get over being "morally" or "emotionally" in debt to others like adult children, brothers, sisters, close friends, etc., who always seem to need Dr. Phil's help. It's your money and your retirement. You worked your entire life for you. Reasonable generosity and reasonable charity is one thing but, in my opinion, your retirement resources are for your retirement. That's all the free advice I have. Thanks.

We worked hard to accumulate more than a million dollars prior to our retirement. We are also fortunate to have a good pension from my husband's 22 years of military service. His military retirement also makes it unnecessary to have to purchase Medicare gap insurance or drug coverage so that helps as well. We are basically using the 4% withdrawal method. This year we will be taking more than 4% due to a major vacation that we just returned from. Our FP advised us that many people withdraw more in the early years of retirement due to relocating and travel expenses but that often as people age they travel less and expenses level off and withdrawals become much less than 4%. We are planning to travel as much as we can while still healthy. If all goes well we will enjoy our retirement years and still have some money left for our heirs. I think the important thing is to be willing to adjust to changing times and be flexible in your approach.

Morningstar has published an excellent portfolio construction process using the bucket approach which would assist many investors on how to invest for retirement income. The second article also includes an excel spreadsheet where they back-tested the approach thru the last 15 years, ( 2 bad bear markets ).

http://news.morningstar.com/articlenet/article.aspx?id=640557

http://news.morningstar.com/articlenet/article.aspx?id=608619

This is an excellent commentary, and I appreciate the perspective that caution is advised, while not summarily banishing the 4 percent guideline. Here's where I would like some more elaboration, perhaps in a future installment. — but then, you're sacrificing a lot of future growth and probably not even keeping pace with inflation. I'll confess I'm confused on this point, but I am leaning toward expanding the scope of my "living expenses" bucket to cover more than a couple of years.

Something I don't see anyone else having a problem with, different accounts with different tax handling. Everything I read here assumes all your retirement savings is in one account. That makes the 4% work.

What about when my wife has a Roth and a IRA as do I. We also have an after tax savings account. RMD only applies to the IRA accounts. You can't withdraw (tax free) from Roth until 5 years after last

This combination of accounts has made for a very worrisome time on how to make it all work out for us. The pre-tax accounts approximately equal the after tax, so I decided to make it work as follows.

Pre-tax(IRA and Roth accounts) take RMD as required and otherwise, don't touch the principal with it invested mostly in very diversified group of ETFs.

After tax is invested in pretty high dividend stocks. Withdrawing the dividends plus Social Security plus a miniscule pension almost hits our pre-retirement income. Extra expenses, travel, etc come from this account and I expect it to gradually decline, but it will be many years before we have to start withdrawing from pre-tax accounts, if ever.

One of my problems with the 4% rule is that it contemplates a 30 year retirement...and if you retire at 66 or so, that anticipates that your assets are being stretched to 96. Seems optimistic to me. I want to use 25 years instead. If I'm still around at 90, those lazy bum kids of mine (just kidding) can help pay for my gruel and Depends.

Clarence, we are using 4% of our total assets but currently withdrawing from our non IRA account. When we have to start our RMDs in a few years we will use that towards the 4% and pull from the other account if necessary.

For what it's worth, here are my two cents worth. I think some folks get confused by the 4% rule. It is simply a guideline. It came about through calculations and Monte Carlo simulations that showed by taking no more than 4% of your assets, with yearly increases for inflation, your likelihood of outliving your assets was negligible. The real calculation all of us retirees and future retirees need to make is what are our expenses in retirement. Will you spend more on some activities such as travel and vacations? You will probably spend more on health care than when you were younger and working. Once you're retired you won't be spending on transportation to and from work, clothing used primarily for work, and numerous other expenses. Once you know what your expenses are and your sources of income you can create a retirement budget.

You may find that your expenses are covered by Social Security and/or a pension, in which case you don't need to tap your assets. With a traditional IRA and a 401k you will have to take RMD's at age 70.5. With a taxable investment account you may have accumulated enough to just live off the dividends and interest and not need to sell any investments. A Roth IRA never requires you to take distributions, so you can leave it to your heirs if you wish. It is also helpful with unexpected one-time expenses. If you have an unexpected expense (medical, household, etc) you can take funds from your Roth to cover the expense and not risk being bumped into a higher tax bracket. Even with a taxable account you can often offset capital gains with capital losses, or at least if you don't have losses your capital gains are taxed at a lower rate than ordinary income.

It can get to be a bit of a juggling act figuring which pots to take funds from, but that's life. Very little is certain or guaranteed. And if you're uncertain how to make these decisions yourself, you can always consult a financial advisor. Just make sure his/her interests are aligned with yours.

I worked for many years in the financial services industry (but as an IT geek) and learned a lot about investing while there. As we started planning retirement, the biggest issue was the difference between my husband and me for risk tolerance. While you will start drawing money out of your portfolio in retirement, you still need to have the bulk of the portfolio continuing to give you good returns, as you may have anywhere from 20-40 years of retirement. Any money you do not need for at least 10 years is "long term" and should be invested more aggressively than the money you need for the shorter term. I think a diversified portfolio is a must, as has been mentioned. Another idea my registered financial adviser pointed out was to have our fixed costs covered by fixed money coming in, e.g. Social Security, pensions, annuities, etc.This plan allows us to feel confident that our basic "necessities" are covered and that the discretionary spending will be tied more to what is happening with our portfolio over time. There are some annuities that grow with inflation, and allow you to change the start of the payout once without a penalty. But the annuities are only a small part of the solution in our plan. You also must take into account your expected life span - if you come from a long-lived family, you should assume (barring any existing health issues) that you are likely to live to age 90. There are many retirement calculators from firms like Fidelity, Schwab, Wells Fargo, and even publications like Money. These calculators can give you a good sense, if you are honest with the data you input, and your market assumptions. It's better to calculate assuming a modest gain in the market (say 5%) and know your money will last, than to give yourself a false sense of security by assuming 20+ years of double-digit returns.

Clarence,
We've got ours spread across 3 accounts with sub portions in taxable & non-taxable. So when it's time to withdraw, it's a matter of determining how much and then it's a bit of a balancing act to decide where to take it from. I may be a little more spread out than most (20 individual stocks & 20 mutual funds covering different asset classes) but I enjoy keeping up with it and usually tap a little here and a little there.

I spent my working life as an analyst so running the numbers and doing comparisons is fun for me. Maybe not so much for others... Haha...

One man's ceiling is another man's floor. I say this because no one talks specifics on what is a "sizeable" amount of retirement savings. But I will...stating that my husband I currently have $550K in retirement savings in our 401(k) accounts. We're still working full time, and expect to retire in 3 years, when I'm 66 and he is 65. Our projected retirement savings will be $675K by then, and we anticipate to receive $4500 a month (before taxes) in Social Security. That's it. Are we doomed?? Will we be able to scrape by? The calculator on my husband's 401(k) account estimates we will have $8000 per month income, including the SS payments, till he's 90. Comments?? thank you!

I'm at $750K in a 401K, and may be laid off at any time. If I don't get laid off, I'll hit that $1M in cash and 401K. I plan on waiting to take S.S. until 66, and have money put away to cover my living expenses if I get laid off. I will get $2350 or so in S.S. The brokerage retirement calculations say I'll have about $58-$63K to live on at 66, so they're pretty consistent with the calculations that you've gotten. If you won't have a mortgage or debt by the time you retire, I think you'll be fine. Let me rephrase that -- I hope you'll be fine, because I'm going to be in almost the same boat. It will depend on where you live, obviously. It will also depend on your expenses. It wouldn't be enough to live comfortably in expensive places, and cover daily greens fees and monthly cruises, but there are plenty of places with reasonable costs of living too. It would be nice if TopRetirements had a blog where people can talk about their prospective retirement budgets and for retirees to report on how their budgets are actually working out. Yeah, this is very personal but on the other hand we're all desperate for data.

Kate, here is a budget that works for me & my wife. $54,000 annually, ($4,500 monthly) one caveat, this does not include our monthly rent since we just sold our home and use the investment proceeds from the sale to pay our rent. this should still work if you own your home, debt free. We live very comfortabley using these percents.
Auto expenses 10% (lease pay't, gas & insurance), Personal expenses, 15.5 % (cash , clothes, beauty stuff , etc)
Utilities 11%, (electric, water, cell , storage) Food 7.8 % (groceries, wine) Dining 12%, (dining out 2x a week)
Travel, Entertainment 19.5 % ( airfare, lodging, 2-3 trips a year) Healthcare 13.3 % (health premiums & copays)
Insurance 2.5 % (life ins, rental ins) Charity 2.2 %, Fed Taxes 6.2%. (pension only). Any additional Fed taxes are paid from our investment income which generates the additional tax liability.
As everyone has previously stated, you need to know how you are spending your money so you can budget properly , good luck

thank you, Ed and Kate, for sharing your stories...very helpful, and encouraging! Our current financial situation is far from great though. We live in NY, land of high taxes and high everything, with a monthly mortgage payment of nearly $3K (including our $11K annual property taxes on the house) for another 20 years!!--so the house has to go. We also unfortunately have substantial debt on top of that--close to $50K--which we're working hard towards reducing by the time we retire in 3 years. If the debt is still high, we'll have to pay it off with the equity we get when we sell the house. We can't stay here in NY in retirement...and really don't want to bear these awful winters anymore. We're on Long Island, and love the beaches we have here (the only real thing Long Island has going for it!!), so are planning to retire in the Tampa, FL area. We've made a trip in March to Sun City Center in Tampa, and found that the 55+ community has a vast offering of housing at virtually all price points. We're pretty confident we can find something in Sun City--but are also grappling with the mortgage issue. i.e., should we pay cash for a house/condo in Sun City with our 401(k) money...or apply for a mortgage? There's so much to think about, that it totally stresses me. I know we should be working with a financial advisor, but the whole process of trying to find a reputable advisor is another stressor. Oh boy, as that old TV commercial used to say, "Calgon...take me away!!" Thanks, everyone, for your perspectives. Keep the comments/advice coming!! We need HELP!!!

Kathy, interesting we live in downtown St. Petersburg, (we relocated from NJ because it's expensive to live there also) We love the downtown setting, we can walk everywhere, keeps us young and vibrant, we only need one car. Beaches are close by, always something going on here. One thing to seriously consider is renting, why do you need the hassle of home ownership, start to enjoy your planned retirement, Travel etc, we reduced our living expenses by $1,000 a month by not owing, no real estate taxes, no homeowners insurance, less electric, water, home maintenance. Invest your home equity to use the interest to pay your rent, it's a lifestyle change but something to consider.
Your asking the right questions but need to make some lifestyle decisions but take your time and think them through.
Another thought highly recommended is rent for 6 months no matter where you re-locate to , make sure you love it before you consider buying.

Ed - Thank you! Very good info! Are you in FL or one of the other states without a state tax? Your utility costs seemed extremely reasonable to me...I guess I'm going to have to learn to be more careful with my thermostat :-).

Kathy: I remember when I moved away from NY/CT 30+ years ago. It was like getting a 25% raise, and I didn't even relocate to one of the really low cost states. Hard to imagine how anyone can retire there, and it's very understandable FL is full of retired New Yorkers! I've looked at Sun City Centre online, and it seems to offer a lot of options.

KathyS, Do you or your husband have any $ invested with TIAA-Cref (403B's and 401K's for those related to the educational field). If so, as long as you have a certain amount invested (sorry, i don't remember the number),you can arrange for someone to come to your home to discuss your financial situation even if most of your money is invested with another company. They have a reputation as being conservative and extremely reliable. Fiduciary responsibility to their clients and much more. I have been VERY HAPPY with our adviser, and she costs us nothing. (I know people will respond and say i'm paying internally, that nothing is free. However, this is just one of TIAA-Cref's services to their clients.) I can turn to her with any question and receive a caring, insightful reply. Look them up and see what you think. By the way, you can schedule a meeting even if you have no $ invested with them. I don't know if there's a fee for this or not. My best to you!

Sharon , I'm in downtown St.Petersburg, FL , which is only 40 miles from Sun City Centre, the St. Pete beaches are only 15 minutes away. I know Sun City Center is a retirement haven, but make sure you check it out and understand how much you have to drive to get to other places. I prefer to be in the downtown where i can walk to everything or bike if I want.

Kathy,
I would not use 401k money to purchase a house. You would probably go into a higher tax bracket and owe even more in taxes. I agree with Ed that renting might be a good option. Its always good to rent until your sure that this is the place you want to stay.

Kathy, I also agree with Jim C, don't use your 401k to buy a house. Based on the numbers you provided you would save over $48K or more annually in living expenses by selling you home. If you rented for $2,000 a month you would still save $25K year and get rid of you debt in 2 years, a no brainer for me.

After calculating that my large home was costing me about 4K a month, I sold it. Now doing anything, anywhere I want. Ah, the gypsy life for me. Until it's not. I'll think about that tomorrow.

We are reposting from another Blog this timely question from Sharon, along with the first response from Jean:
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I just read another article that mentioned the 4% guidance for withdrawals from savings in retirement. I am confused. If I have $1M in a 401K and withdraw 4% a year, that would give me a retirement income of $40K (plus Social Security). If the average rate of return for my 401K is 4% or higher, doesn’t the 4% guidance mean that the principal would never be touched? My heirs will be happy. By Sharon
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Sharon, Regarding 401K and IRA withdrawals, once you reach 70 1/2 there are minimum withdrawal requirements set by the govt unless you are in a Roth IRA. Failure to take the minimum results in a penalty. By Jean
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Editor's Comment: Yes, Jean, there are Required Minimum Distributions once you reach 70 and 1/2, although there is no requirement to spend what you take out. RMD's start out at 3.65% and end up over 15% if you live to 100. (see https://www.topretirements.com/blog/financial/as-oldest-boomers-turn-70-irs-says-happy-birthday.html/)

But back to Sharon's query, the real question is 4% , or any other figure, the right number to spend out of your retirement assets. See the article above for various theories on this question and many interesting Member comments.

I believe looking at your monthly expenses (budget) and withdraw what is needed instead of said percentage may be a better approach. In our case this has been a moving target for several years related to selling our home, downsizing, living a year in an apartment, and now our new home, also healthcare costs as we are not 65 yet. So what I'm saying it is still a moving target. Our financial adviser understands and we withdraw what we need to meet our expenses, we need more we take more and if we need less we take less. It is starting to level out and a next step is to begin talking to an estate planner for decisions related to trusts and taxes in later years.

Bruce, you are far more "correct" in your approach than the 4% rule can ever be. We have followed a similar "common sense" approach (know what you have and adjust regularly to ensure you don't overspend -- we typically compare spending to budget 3 times a year). Early in retirement, we have had most years of 2% (or even less) annual investment withdrawal so that last year when we did a major master bath renovation, our practices helped to balance out. However, over the15 years, our average investment withdrawal is still less than 4%. (We started with far less retirement savings than any recommendation, yet we have maintained or even improved our basic lifestyle -- more travel/home improvement.)

Now that we have reached RMD age (sorry, but I'm not going to reveal our actual age :<), all those calculations change -- the withdrawal rate for 401K/IRA is now only important for the Feds. (And, Sharon, those IRA penalties for failure to withdraw sufficiently are quite steep!) We are now monitoring our TOTAL investment -- IOW, the RMD withdrawal is transferred into our non-tax deferred investment fund with the "<4%" annual withdrawal checked against the combined total. Bruce, apparently you use an advisor while we are self-managed -- similar results.

In the intervening retirement years, health care and taxes have been high and difficult to predict (I tend to over-estimate future costs because 4% has been laughable). Add the "down the road" concerns for Soc Sec, Medicare and even pensions, and the makes the 4% rule is even less dependable.

Is all this worthwhile? I don't want to be destitute if we should live long. We will try to live comfortably, increase our expenses if the resources are available, and allow our heirs (who seem to do better than we :<) to take care of themselves. Are we lucky? YES! All those years of "making our own luck" (such as this topic) have paid off -- despite the same kind of life setbacks that everyone experiences.

I'm also of an age where the RMD is necessary. That's all I withdraw. It's deposited in my checking account automatically every December (the brokerage firm does the figuring out). That's worked fine for me and I assume it will continue to work. If there's money left over for my kids, fine, but they both make very good money and have good savings and retirement plans, so that's not a priority, and they've said that I should spend my money. If I need more than I get from my RMD, SS, and my small pension, I take money out of my taxable accounts. I'm spending more on travel now because I may not be able to do as much in the future.

The reminder about RMD was very helpful - thank you! The big struggle I have is deciding what to do in years 65-70, before the government dictates RMD. These are the years where I would like to spend the most, for travel and other activities. If the 4% rule contemplates withdrawal of only the income on the account, I wouldn't touch the principal until forced by RMDs. if I could withdraw something in excess of that 4% guideline in years 65-70, I'll be tempted to expand my budget in years 65-70 to add some bucket-list travel. Fortunately, my baseline budget is covered. It's that elusive bucket list travel that is tempting me to spend, spend, spend.

Sharon - I'm 65/single. What I plan on doing is to start a Roth conversion of a portion of my IRA. I figure taxes will never be lower and, presently, I plan on waiting until 70 for SS. My SS at 70 will be near the max and, combined with RMDs, would raise my taxable income, my Medicare premiums, and increase the taxable portion of my SS. My current income is all qualified dividends of which the first $38,600 is not taxed, so I would have quite a bit of room before even breaking out of the 12% bracket. Money converted would still be invested in the Roth, but no more taxes. So I think...