We all dream of a nice nest egg for retirement, but how do you make your savings stretch once you are there?
We’ve been told that there are some simple rules to follow in the golden years. But in the “new normal,” do those rules still apply? David Blanchett, head of investment research at Morningstar Investment Management, says the first rule you should question is the 4 percent rule. That is, the idea that when you retire, withdraw 4 percent from your 401k every year … and then increase that by inflation.
So does it still apply? “The problem is the four percent rule is kinda based on a couple both aged 65 and it doesn’t really apply to someone who is single and age 65 and married couple who is 75.”
“It’s a good starting point, but it’s not very realistic for every type of retiree.”
What about income?
Things like the four percent rule provide a better insight on how much you need to save for retirement, not how much you withdraw, for instance.
“Whatever income need you have to create that’s not covered by things like a pension or social security, you need about 20 to 25 times that income amount when you actually retire.”
But even that, it comes down to your spending. A 65-year old might not spend like an 80-year old.