Financial advisors can be retained to do a detailed analysis of the level of income that your retirement income can safely provide. Consideration of life expectancies, future living expenses, investment returns, available assets, income benefits, inflation, and any part-time work are all included as part of the complicated calculation to determine whether your retirement savings will last for the rest of your life or lives for couples.
As a quick alternative to such a labor-intensive analysis, Investment Management Corporation, an investment advisory firm located in Roanoke Va. has calculated how much income can be safely withdrawn to make sure it will last for as long as needed.
It is even safer to withdrawal amounts that are less than the percentages that are illustrated below. However, for withdrawals from savings to be at a "safe" (meaning sustainable) level, these guideline annual percentage amounts withdrawn from your total accumulated retirement savings should not be exceeded.
The withdrawal amount should be reevaluated annually and adjusted to reflect current funds that remain after adjustment for any contributions of new savings, actual expenditures, and investment returns.
-----------------------------------------------------------------------------------------------------
Also illustrated are recommended percentages of total income to save annually to be able to later withdraw annually 50% of pre-retirement income.
Guideline “Safe” Withdrawal Percentages for Various Retirement Periods:
Withdrawal Period: 40 Years Safe Withdrawal %: 4.3%<----->5.8%
30 Years 5.1%<----->6.5%
20 Years 6.7%<----->8.0%
10 Years 11.7%<----->13.0%
Inflation Rate Adjustment Assumption:
The new 2018 tax law will use the Chained Consumer Price Index that rises more slowly and is expected to be more accurate in measuring the effects of inflation. The illustrated percentages assume that future inflation continues to average 3% (which is near its long-term average) and investment returns match inflation at the low end of the range and exceed inflation by 2% at the high end of the range. Savings amounts to fund 50% pre-retirement income are calculated using historic returns from "balanced" equity/fixed income portfolios.
Savings Amounts to Fund 50% of Pre-Retirement Income:
Saving Period: Withdrawal Period: Savings% of Income:
40 Years 40 Years 9.2%
40 Years 30 Years 8.8%
40 Years 20 Years 7.6%
-----------------------------------------------------------------------------------------------------
30 Years 40 Years 18.6%
30 Years 30 Years 16.6%
30 Years 20 Years 13.9%
-----------------------------------------------------------------------------------------------------
20 Years 40 Years 38.9%
20 Years 30 Years 35.9%
20 Years 20 Years 30.9%
Greg Tinaglia
Last Updated: 04/06/2018