Six Rules to Customize Your Retirement Spending Plan
Figuring out how much money to save for retirement is only the first step. How much can you reasonably spend per year? The answer, says Research Fellow Luke Delorme, is as unique as the retiree.
The American Institute for Economic Research has created a new retirement withdrawal calculator that lets retirees consider several important factors that will affect how much you should spend each year. For example, it takes into account retirement age, the level of risk that you will outlive your money, and how much of your savings you invest in stocks.
The calculator is accompanied by Delorme’s research report, “How to Formulate a Retirement Spending Plan,” released by AIER on Tuesday. Delorme said factors retirees should consider include:
- Know that luck plays a big part in how much you have to spend. You can’t control stock market performance during your investment period, and “chasing returns” can hurt you.
- The best way to make sure you don’t run out of money is to restrain your spending. But that could also mean you’ll die with a good deal of unspent money. Consider your appetite for risk in deciding how much to spend per year.
- You’ll also want to consider whether you will need to withdraw a specific amount of money each year, or whether you have the flexibility to adjust based on stock market performance that year.
- How long will you need your retirement savings to last? That depends on several questions: How long do you plan to work? What is your estimated life expectancy, based on your health and gender and marital status? Single men, for instance, have a shorter life expectancy than a woman or married man.
- If you have guaranteed retirement income from pensions, annuities and Social Security, you’ll have the flexibility to take more risks with your investments, and perhaps withdraw more per year.
- If you pay higher investment management fees or want to leave more money to your heirs, reduce your withdrawals.
All these factors are taken into consideration in AIER’s easy-to-use retirement withdrawal calculator, which can be found here.
