Spending During Your Retirement
So, you've squared away your investments, and you're counting down the days until your 50th birthday. How much money should you withdraw each year during your retirement? For a traditional retirement, many investors recommend withdrawing 4 percent of your nest egg's initial value each year, adjusted for inflation. According to CNN Money, if you start off by withdrawing 4 percent of your savings -- that's $47,200 if you have a $1.18 million nest egg -- there's an 80 percent chance of your savings lasting for 30 years, but if you take a 6 percent draw -- that would be $70,800 -- the odds drop to 25 percent [source: Updegrave].
We talked about living off of 70 to 80 percent of your pre-retirement income, but that amount can vary depending on what you intend to do during your retirement. Maybe you want to withdraw more money at first to travel the world and scale down as you get older. Maybe the peace of mind of knowing you have funds for a medical emergency further down is incentive enough for you to keep your withdrawals low. Simply put, it's a matter of balancing your enjoyment of retirement with your ability to pay for it.
It helps to be be thrifty. Spending less before you retire means you have a bigger chunk of money to grow, and spending less after you retire means you can stretch your savings further. Track your expenses with a personal finance software program like Quicken -- or go the route of John D. Rockefeller and just write all of your purchases down in a book [source: Vander Broek] -- and trim costs wherever you can. Eat out less often, and buy generic instead of name brands; pay off your debt, buy a less expensive vehicle, take fewer and less lavish vacations, or find a smaller home in a less expensive city.
You might decide to make bigger decisions to meet your retirement goals, like foregoing having children -- the U.S. Department of Agriculture estimates it costs $226,920 to raise a child in a two-parent, middle income family, not including college [source: Dickler]. After you retire, you might consider moving to a country with a favorable exchange rate or low cost of living to stretch your funds even further [source: Emling].
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- Updegrave, Walter. ''Retirement Savings: How to Draw the Max (Safely).'' CNN Money. Sept. 20, 2011. (Oct. 14, 2011) http://money.cnn.com/2011/09/20/pf/expert/retirement_savings.moneymag/index.htm
- Vander Broek, Anna. ''How to Retire Early.'' Forbes. Nov. 2, 2010. (Oct. 8, 2011) http://www.forbes.com/2010/11/02/retire-early-plan-lifestyle-personal-best-10-saving.html
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