Three Ways to Stretch Your Retirement Savings Further

It can be difficult to figure out how much you should spend of your retirement funds each year once you are no longer working. You don’t want to run through your retirement too quickly because it would leave you without any money for your final years. On the other hand, you don’t want to draw out less than you could be drawing so that you have to survive on less than you could have. The ideal situation would involve drawing out the maximum amount each year without depleting the account before you are ready.

Following the 4% Rule

Traditional economists have suggested that a retirement income should consist of 4% of the overall savings. If you limit yourself to using 4% of your retirement each year, you should be able to maintain your account throughout your retirement years without sacrificing too much or going broke. This general rule of thumb has been used with varied success for at least 50 years by many retirees.

Problems with 4%

The trouble with the 4% rule is that it is not flexible enough to handle the fluctuations of the stock market and interest rates where most of the retirement fund is being held. If the stock market is down, a retiree will have less money in their account than they expected, and they will receive a smaller amount of spending cash when they withdraw their 4%. If the market is booming, the retiree could accrue more savings than they planned for, which would leave them with a larger account that they did not take advantage of. The volatility of the markets requires a more varied approach toward retirement spending for the best results.

Financial Engines Plan

This retirement plan controls your retirement funds by investing them more precisely. The majority of a 401(k) fund, for example, would be invested in bonds to cover your minimum spending requirements. The stable nature of bonds keeps your retirement fund safe for your basic needs. The rest of the fund is invested heavily into stocks, which can create larger payouts. The possibility of wide shifts in losses and gains through the stock investments are countered by the safer bond investments that guarantee that your savings will always cover your standard budget. If the stock market booms while you are invested, your payouts could increase and you could enjoy additional financial boosts during your retirement years.

GuidedChoice Investing

GuidedChoice is an investment firm that offers a special program for retirement portfolios. The GuidedSpending program allows you to test out several different types of investment packages before you choose one. You can learn for yourself which combination of stocks and bonds will provide the best return for you. This program relies more on stocks than the Financial Engines plan. GuidedSpending is a complicated system that would be difficult to duplicate on your own, so you would need to hire the firm to help you manage your funds if you choose to use this system. The fees are relatively small, however, and GuidedChoice will manage all of your investments for you.