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More than one-third of retirees lack confidence that they will have enough money to live comfortably throughout their retirement years.1

The 4% Solution
One common approach has been to withdraw 4% of your portfolio in the first year of retirement, with inflation-adjusted amounts in subsequent years. The so-called “4% rule” was developed in the 1990s using historical market research, and it was based on a 30-year retirement with dollars in a tax-deferred account and nothing left for heirs.2

Lately, in response to a concern that future market growth might be lower than historical averages, some retirees have reduced their initial withdrawals to 3% or 3.5%.3 By contrast, more optimistic or aggressive risk takers (like those who can rely on a traditional pension for some income) might begin with a higher withdrawal rate.

The Three-Phase Solution
An alternative approach is to envision a three-phase retirement and divide your nest egg into three pools that reflect the needs, risk level, and growth potential of each phase. In the first pool you might hold cash and cash alternatives; in the second you could have mostly fixed-income securities, such as bonds; and in the third you could have growth-oriented vehicles such as stocks that might be more volatile but have higher growth potential over the long term.

For the first five years or so, you might receive income primarily from assets in the first pool. For the middle phase, five to 15 years in the future, you would have income from the second pool of assets. And during the third phase, more than 15 years in the future, you would have income from growth-oriented vehicles.
Sources:
1) Employee Benefit Research Institute, 2012
2) smartmoney.com, February 7, 2012
3) InvestmentNews, January 23, 2012

Don’t Navigate Retirement Planning Alone

Retirement planning can be stressful if you’re doing it alone. But, if you have an expert at your side, your nest egg dollars can go further and stay safer. Contact me at (866) 471 7233 and allow me to partner with you on your retirement planning strategy. If you’re in Maryland, Virginia or Washington, DC, please visit me at my office in Upper Marlboro.