Valerie RumboughQuestion: Is there a way to determine how much I need to have in my retirement account when I retire so that I don’t run out of money before I die?
Answer: There are several resources available that will help determine how much you need to have in your retirement account on the day you retire, from purchasing financial planning software to consulting a retirement planning professional. These resources are great to get a customized plan for retirement.
However, a general rule of thumb for figuring out that magic number is to plan on withdrawing no more than 5 percent of the value of your account each year to meet your needs. For example, if you have $1 million in your account on the day you retire, plan on withdrawing no more than $50,000 in the first year, adjusting each year thereafter for inflation. That way you can be reasonably sure your savings will support you over a retirement that could last 30 to 40 years.
Some say that in the early years of retirement, you may want to withdraw even less, say 4 to 4.5 percent. Although later you may find that you could have withdrawn more, it is better to be in this position than facing the fact that you may run out of savings.
So save as much as you can now, and if it appears your income needs will be greater than 5 percent, consider other options such as delaying retirement a few years, supplementing retirement income with a part-time job, or adjusting your retirement budget downward. Most importantly, commit this to prayer, asking God for guidance.
Rumbough, CPA, CFP, is vice president of finance with the Baptist Foundation of South Carolina. If you would like more information concerning the above article or other matters, 800-723-7242.
Editor’s note: In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purposes.