110 degrees magazine - Index

110 degrees magazine - wlinks_may08 - Index

To enjoy a comfortable retirement lifestyle,
you need to take a hard look at reality. But that
doesn’t mean you can’t learn something from
a fairy tale. Specifically, when you’re trying to
determine how much to withdraw from your
retirement funds, you’ll want to find the
“Goldilocks solution” — not too much, not too
little, but just the right amount.
However, while Goldilocks’ decisions
focused on relatively minor issues, such as
heat intensity of porridge and relative comfort
of beds, your choices regarding withdrawal
rates can have a big impact on how you spend
your retirement years. If you take out too
much money each year, you run the risk of
running low on funds later in your retirement.
On the other hand, if you withdraw too little
each year, you may end up living more of a “no
frills” existence than is truly necessary.
So you’ll want to create a withdrawal strategy
that’s appropriate for your individual situation.
Consider the following factors:
Age — Generally speaking, the younger
you are at retirement, the lower your
withdrawal rate should be. So, for
example, if you retire at age 60, you
might want to withdraw about 3 percent
to 4 percent a year from your sources of
income — your investments, 401(k), IRA,
etc. But if you work until you are 70, you
may want to take out between 4 percent
and 6 percent annually. In any case, you
will likely need to increase your with
92 www.110mag.com May/June 2008
Advertorial
Column I FIND “GOLDILOCKS SOLUTION” FOR MANAGING RETIREMENT INCOME
“YOU’LL WANT TO CREATE A WITHDRAWAL
STRATEGY THAT’S APPROPRIATE FOR YOUR
INDIVIDUAL SITUATION.”
drawal rates over time to help keep up
with inflation. Also, keep in mind that
these figures are only guidelines; there’s
no one “right” figure — or even range of
figures — for everyone.
Risk tolerance — All of us have different
levels of risk tolerance. If you are
extremely concerned about outliving
your retirement income, you may want to
withdraw less money each year from your
investments than someone who, for
whatever reason, is not particularly wor
ried about running out of money.
Investment mix — If you own mostly
fixed-rate vehicles, such as bonds or
Certificates of Deposit (CDs), your
investment income may not keep pace
with inflation. Consequently, you will
probably have to take smaller with
drawals each year than if your portfolio
included a reasonable amount of growthoriented
investments, such as stocks.
Estate considerations — If you would like
to leave a sizable legacy to your family
and to charitable organizations, you may
want to withdraw less money each year
from your investments than if you had
more modest ambitions for your estate.
Still, you’ll need to reconcile your
generosity with your own retirement
income needs — so don’t “over-commit”
yourself with your future planned giving.
It can be challenging to come up with the
right withdrawal formula for your
individual needs. In addition to the
factors described above, you’ll need to
account for required minimum
distributions (RMDs) from your 401(k) and
IRA. If these amounts are higher than
what you need, you may want to reinvest
them. If you fail to take the minimum
distribution, you will owe ordinary
income tax plus a 50-percent penalty on
the portion that you should have taken.
But in any case, you’ll want to work closely
with your financial advisor to create a strategy
that’s right for you. And, since some of
your decisions will have tax implications,
you’ll also need to consult with your tax
advisor.
By making the right moves with your retirement
income, you could find yourself, like
Goldilocks, living happily ever after. °
Send any comments on the editorial to editors@110mag.com.
Susanna Wahl
Financial Advisor
Edward Jones
613 First Street Suite 203
Brentwood, CA 94513
925-240-9985
www.edwardjones.com