â€śThe Boomerâ€ť is a column that targets adults nearing retirement age and those already in their â€śgolden years.â€ť It will also promote reader interaction by posting e-mail responses and answering reader questions. E-mail your questions to firstname.lastname@example.org.
Educating yourself can be daunting, and a lot of us never want to admit that we need help. I think of Fonzie from the Happy Days TV show. On the surface, Fonzie had everything. Women loved him. He always knew how to handle every situation. And the jukebox even blasted on simply when he hit it with his fist.
But Arthur Fonzarelli had a secret. He was a high-school dropout. He always regretted it, but secretly. He was so embarrassed by it that he went to night school in secret on the show to get his diploma. (Interestingly, actor Henry Winkler, -- a boomer like us â€“ has preached education as the driving force behind a successful life, overcoming his own dyslexia.)
Why do I bring this up? Because you have to overcome some embarrassment and learn new things to succeed at retirement, particularly when it comes to how much you should withdraw from your nest egg. It is a delicate equation that we often donâ€™t think of, because most people worry about saving and investing when it comes to retirement planning. It takes an understanding of your needs, a thorough understanding of what your money is earning, and a guesstimate of how much money youâ€™ll need for how long.
It comes down to the question of whatâ€™s known as the withdrawal rate. Take out too much and you suddenly find yourself with too little money. Take out too little and you may have to make sacrifices that arenâ€™t necessary. Itâ€™s one of the biggest dilemma facing boomers.
â€śUnlike previous generations, boomers have fewer sources of guaranteed income,â€ť said Matt Leung, director and head of Practice Management Programs at MainStay Investments. â€śAs a result, they will need to rely heavily on their personal savings to achieve the retirement they've envisioned. Therefore, understanding withdrawal rates is critical to their success.â€ť
It is not an easy balance to find. â€śSetting a reasonable withdrawal rate that can meet their discretionary expenses, while supplementing their portfolio with additional sources of guaranteed income to meet their basic needs can increase the probability of weathering out periods of volatility and not outliving their savings,â€ť Leung said.
If you have a financial advisor, thatâ€™s his job. More likely, you have to do it yourself. Hereâ€™s where learning and math come in. Thereâ€™s something called the 4% rule, which is a great place to start. (Again, Iâ€™m not giving investment advice, but itâ€™s a rule of thumb a lot of advisors use. But, remember, itâ€™s a guideline, not a rule, so make sure it works for you.)
The 4% rule assumes youâ€™ll live for 25 years after retirement. Conveniently enough, itâ€™s based around taking 4% out of your portfolio when you retire. You then adjust for inflation in subsequent years.
Luckily, thereâ€™s also some help online. Fidelity, for instance, has a great web site that walks you through different strategies for withdrawals. All depends on what kind of income stream you expect to have.
Also, many online retirement calculators, like the one here help calculate withdrawal rates.
The key, though, is research and learning.
And finding a way to still look good in the white t-shirt and leather jacket.
E-mail your questions to email@example.com.