Make Your Money Last

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You’ve spent much of your career socking away part of each paycheck in your retirement accounts, carefully choosing your investments and faithfully sticking with your plan. Retirement is near—or perhaps you’ve recently retired. Now comes the complicated part. How do you make sure your savings will see you through your retirement? And another big question looms: How do you protect your nest egg during a bear market—which will inevitably come roaring back at some point? // To help answer those questions, we take a look at three key decisions for new retirees: how much you can safely withdraw from savings each year, how to protect against having to sell investments in a down market, and how to supplement Social Security to lock in guaranteed income for life.

PART 1

SET YOUR STRATEGY

How do you tap a nest egg without depleting it too soon? The math is tricky because you don’t know how long you’ll need the money or whether you’ll be hit with big medical or long-term-care bills. And no one can be certain that the stock and bond markets will deliver predictable returns over the next three or four decades.

In fact, many retirees are so afraid of running out of money that they are overly frugal—even when they have plenty of assets or the safety net of a pension, according to a recent study by the Employee Benefit Research Institute. EBRI found that people with $500,000 or more in savings at retirement spent down less than 12% of their assets over 20 years. That’s good news for heirs, but it also suggests that retirees are scrimping unnecessarily.

To help new retirees navigate withdrawals, advisers often recommend the “4% rule” as a starting point. This strategy is designed to make a portfolio last at least 30 years—through bear markets and bouts of high inflation.