Retirement and Your Withdrawal Rate

October 24, 2023

The amount of money a retiree can withdraw from their retirement accounts is widely debated in the financial services community.  I suspect it leads to confusion among retirees.  The question asked is: How much can I withdrawal on a regular basis and not run out of money?

The generally accepted rate is 4% to 5%.  For simplicity’s sake, we will use 5% in our examples. But remember, that is the rate for a 66-year-old who has a fully funded retirement.  People who retire younger may have to accept a lower rate and those who retire later in their 70’s may be able to withdrawal at a higher rate.  Early and longer retirements require a lower rate, while later retirements permit a higher rate. The most important variable is life expectancy. The longer the projected retirement means lower rates of withdrawal.  As we age, rates of withdrawal may increase. The 5% recommendation is for the person who retires at age 66 expecting to live 25 or more years.  A couple at age 66 should expect that one of them will live into their 90’s. Underfunded retirement accounts will require lower rates of withdrawal [lower retirement incomes] and/or a delayed retirement.

You are probably still confused.  The best advice we can offer is that the lower your rate of withdrawal, the better your odds are of not running out of money.  In the meantime, we suggest routinely having us check your retirement projections and apprise you of your investment account’s continued ability to sustain your income throughout your lifetime.

I believe it is important to rethink how you value money in terms of how money for spending is spent.  When we are working, most of our money comes from work.  Our jobs and the hours we work determine how much we earn.  Not all jobs are equal to the wages they pay.  Some pay more and some pay less. We all understand and measure how much we spend based on how much we earn.  Quite naturally we understand that a $70,000 annual income from work buys less than a $170,000 income.

But in retirement everything is different because our wages and income from our jobs are not the primary determinant of our income.  Income is now dependent on how much we have “stored” away.  

Like the squirrels I reference in my book, Investing Ahead, their winter food depends on how much they stored earlier in the year.  Similarly, our retirements depend upon how much we stored while we were working.

The store of value is simple. If we withdrawal 5%, it requires at least 20 times the dollar withdrawn for each dollar we receive.  If we withdrawal $50,000 from a retirement account, it requires $1,000,000 to produce the income at 5% [good]. When $50,000 is not supported by at least $1,000,000, the withdrawal percent is higher [not good]. If there is more than $1,000,000 it is a lower rate [best].

When we were working and decided to go out for dinner, the measure we used was cost vs. how much we earned. If our family income was $100,000, it would seem $150 to eat out was affordable.  In retirement, the stored-up wealth required to pay for the $150 dinner is $3,000.  [5% of $3000 equals $150]

When working, a wealthy lifestyle can be purchased with income earned from our jobs.  It may be a wealthy lifestyle, but it does not mean you are wealthy. To be wealthy means you could sustain your lifestyle if you never worked another day in your life.

Earlier we said a 5% withdrawal from investments would require $1,000,000 to be sustained in retirement for a 66-year-old. If you can live on Social Security, with or without a pension, then you are independently wealthy, and the additional savings and retirement benefits you receive aren’t necessary for your retirement security.  If you need as much as an additional $50,000 a year, then you need the additional investment of $1,000,000.  

It is really that simple. The more expensive your lifestyle, the more you require in stored up wealth.  Some of you need very little and some of you need quite a bit.

So, as you think about spending money in retirement, it helps if you think of costs differently than when you were working.  A $3 cup of coffee may have been thought of as minutes of labor while working.  In retirement, using the 5% rule, it is better to think of the cost in terms of stored up wealth required to pay for the cup of coffee.  In this case it is $60.  For a $50 dinner it is $1000.  For a $50,000 car it is $1,000,000.

Retirement requires a different mindset.  It requires thinking about money much differently than when you were working. Try not to forget, you can only spend a dollar once.



Thomas Curran - Founder & CO-CEO

Our Financial Planning Process

At Curran we value service over sales and believe quality service yields happy clients. Below is our 4-step process (the first three steps at no cost to you).

Engage & Discover

A short introductory call for us to get to know one other. During this call we will discuss your financial goals, concerns and hopes for the future.

Goals & Data Gathering

In this meeting we will go over your current financial situation, take a deeper look at your goals, discuss your risk tolerances, and collect the data necessary to build a formal proposal.

Proposal & Evaluate

Based on our data gathering session, our Private Wealth Managers will present you with a custom proposal tailored to your needs. We encourage individuals to take the time to evaluate this proposal.


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