How Much Can You Afford to Live On?

Posted on March 29, 2009
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Those approaching retirement age become increasingly interested in how much money will be available for them to live on each year. The obvious fear is that the money may run out if you draw out too much, and you will live the end of your life as a pauper. On the other hand, and apart from wishing to leave a reasonable inheritance for your heirs, there is always the feeling that you want enjoy life in retirement, and that sufficient money is one element to this.

 

One way in which you can deal with the question of an assured regular income is by purchasing an annuity. You can find annuities to suit your needs, and the payments can increase each year in line with inflation. However, as they are insurance they do not, on average, give as much income as straight retirement planning, with an annual draw down of your resources – mainly because the insurance company has expenses which must come from the investments. Another disadvantage is that you cannot easily vary the amount that you take, if for instance one year you want to make an expensive purchase.

 

A survey conducted by MetLife last year found that nearly 70% of pre-retirees overestimate how much they can take out of their retirement savings each year, with 43% believing that they can withdraw 10% or more each year without damaging their principal. The only reason that this might be excusable is that 60% also underestimate their life expectancy in retirement. This is clearly a case for some investment advice from a company such as Integrated Asset Management LLC (www.iamllc.biz) or an investment advisor such as Ken Himmler (www.kenhimmler.com).

 

So how much should you expect to be able to take from your diversified investments? Disappointingly, the experts generally agree that you should only take 4% per year. This is based on the worst investment period of the last 75 years, and assumes that your capital will dwindle away after thirty years.

 

Authored by Kenneth Himmler, Sr.

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