Retirement is a time to relax and enjoy the fruits of your labor. However, it's also a time when you need to make important decisions about your finances, particularly when it comes to your retirement savings. One of the most important decisions you'll make is how to create a sustainable withdrawal plan from your retirement savings. This plan will help ensure that you have enough income to support your lifestyle throughout retirement while also preserving your savings for the future. In this blog post, we'll discuss the key steps you need to take to create a sustainable withdrawal plan.
Determine your retirement income needs
The first step in creating a sustainable withdrawal plan is to determine your retirement income needs. This includes all of your essential expenses, such as housing, food, transportation, and healthcare, as well as your discretionary expenses, such as travel and entertainment. You'll also want to factor in any potential changes in your expenses, such as increased healthcare costs as you age.
Assess your retirement savings
Once you've determined your retirement income needs, you'll need to assess your retirement savings. This includes all your retirement accounts, such as 401(k)s, IRAs, and any other investments you may have. You'll want to determine your total retirement savings and calculate the amount of income your savings can generate based on various withdrawal rates and investment returns.
Choose a withdrawal rate
The next step is to choose a withdrawal rate that will help ensure that your retirement savings last throughout your retirement. A commonly used rule of thumb is the 4% rule, which suggests that you can withdraw 4% of your retirement savings in the first year of retirement and adjust that amount for inflation in subsequent years. However, it's important to note that this rule is not a guarantee, and your actual withdrawal rate will depend on a variety of factors, including your age, investment returns, and inflation.
Consider your investment strategy
Your investment strategy will play a crucial role in your retirement income plan. You'll want to consider your risk tolerance and choose investments that can generate the income you need while also preserving your savings for the future. This may include a mix of stocks, bonds, and other investments that can provide a steady stream of income.
Review and adjust your plan regularly
Finally, it's important to review and adjust your withdrawal plan regularly to ensure that it remains sustainable over the long term. This may include adjusting your withdrawal rate, changing your investment strategy, or making other adjustments as needed based on changes in your income needs or market conditions.
Provident Financial Planning creates sustainable withdrawal plans from client retirement savings through careful planning and consideration. Our in-house team of JD, CPA, and CFP® advisors customizes each retirement plan to the client based on their assets, risk tolerance, income streams and expenses. Working with Provident Financial Planning ensures that your retirement income plan is tailored to your specific needs and goals.
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Paul S. Michel, CFP®