Living Off Your Nest Egg

If you are counting on savings and investments for part of your retirement income, below is a rough idea of how long your nest egg may last.

This table shows how much you can withdraw each month, if you want your money to last for 20, 30 or 40 years and at an after-tax rate of return of 3%, 5% or 7%.

How far will it go:

  No. of years you want to make withdrawals Monthly amount you can take out if your money is earning a net rate of return of 3% Monthly amount you can take out if your money is earning a net rate of return of 5% Monthly amount you can take out if your money is earning a net rate of return of 7%
$50,000 20 $277 $330 $388
  30 211 268 333
  40 179 241 311
$100,000 20 555 660 775
  30 422 537 665
  40 358 482 621
$250,000 20 1,387 1,650 1,938
  30 1,054 1,342 1,663
  40 895 1,206 1,554
$500,000 20 2,773 3,300 3,877
  30 2,108 2,684 3,327
  40 1,790 2,411 3,107
$750,000 20 4,159 4,950 5,815
  30 3,162 4,026 4,990
  40 2,685 3,617 4,661
$1,000,000 20 5,546 6,600 7,753
  30 4,216 5,368 6,653
  40 3,580 4,822 6,214

Note: These numbers were calculated with The Banker’s Secret Software.

Keep in mind the numbers above do not adjust for inflation. So a $4,000-a-month income now may be comfortable, but it will not buy as much 10 or 20 years from now. Inflation averages 3% a year—according to Ibbotson Associates’ “Stocks, Bonds, Bills, and Inflation Yearbook, 2006″— but the percentage increase can vary widely. For example, in January 2008 the inflation rate was 4.28%, and back in 1980 it was an awe-inspiring 12.5%.

Of course, if you have a strong pension that includes cost-of-living adjustments, it likely will provide a good part of your retirement income. But if you are relying on Social Security (where the future is less certain) and/or your savings and investments, then you will want to make sure you have enough money to last.

While the chart above may seem simple, calculating how much you can withdraw safely from your savings and investments is no easy task. One of the reason financial planners and retirement experts are concerned about retirement assumptions is that they almost always are based on averages, such as an average rate of return on investments, or on assumptions about tax rates. But averages don’t show the ups and downs, which could affect your retirement significantly. The following calculators will help:

  • Some financial planners suggest you start by withdrawing 4% of your savings the first year you’re retired. The second year, you’d withdraw 4% again, plus a little more to offset inflation. If your savings began to drain too quickly, you’d trim the withdrawals.
  • If you haven’t stashed away a lot of money for retirement, you may have to let go of the idea of leaving an inheritance for children or grandchildren. In an ideal world, you would leave your nest egg invested and just live off the interest or investment returns. But that is not always realistic.

Because this kind of planning is so important, and so complicated, it can be useful to talk with a financial adviser to learn about strategies for making your money last.

Keep Working

You may be eager to retire after 30 or 40 years of working. Not so fast! Working just a little longer can mean a lot more money in retirement. If you will receive a pension from your union job, you definitely will want to consider working until you are vested fully and can receive the maximum pension benefit. Staying on the job after you have vested, though—either part-time or full-time—may allow you to hold on to your nest egg longer, pay off any debt you still owe and keep you more active.

While most people think they will retire at 65, two-thirds of today’s retirees actually stopped working at an younger age, according to the Employee Benefit Research Institute‘s (EBRI) 2007 Retirement Confidence Survey.

At the same time, just because you want to work doesn’t mean you will be able to. You may find that you need to take care of an ill spouse, for example, or you may have health challenges of your own. Although two-thirds (67%) of workers expect to work at least part-time in retirement, only 37% of retirees say they actually worked for pay after retiring, according to the EBRI 2007 Retirement Confidence Survey.

Some union members decide to go back to school and enter the workforce in another union job. Start thinking about your options and if further education is appropriate, visit the Union Plus College Planning Center for help.

Some employers specifically are targeting older workers for their open positions. For sites that list job opportunities for seniors, visit Senior Service America.


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