A. Many financial advisers recommend withdrawing no more than 4 percent of your assets in the first year of retirement. Whatever that dollar amount is, they say, you then increase it by 3 percent each subsequent year to keep pace with inflation. For instance, if you've got a $100,000 nest egg, you'd take out $4,000 the first year. The second year, you'd take out $4,120 — that extra $120 is 3 percent of $4,000.
See also: What are my odds of a flush retirement?
With your remaining assets continuing to generate earnings, this strategy should carry you forward 30 years or so without exhausting your holdings.
However, there is a growing belief among experts that 4 percent may be too much to withdraw in light of the down economy, falling stock prices and lower interest rates.
They say your money won't last if you stick to the traditional 4 percent rule, and that 3 percent, or even 2 percent, may be more realistic, depending on your age and your family longevity history.
Whether you take 2, 3 or 4 percent of a small portfolio, it isn't much to live on. That's all the more reason to make sure that you save as much as possible while you're working — and work as long as you can.
It's best to work with a financial adviser if you can, planning out as far as you think reasonable, into your 90s or maybe 100.
There are many other decisions you'll need to make, of course, such as what assets to have in your portfolio as you age. For more information, see AARP's retirement planning page.
Also of interest: Do the math for retirement. >>
Carole Fleck is a senior editor at the AARP Bulletin.
Next ArticleRead This