If you’re retired and relying on your investments to produce an income, market volatility can be especially challenging. Aside from thinking about how your portfolio is invested, you may also need to rethink the rate at which money is taken out. If your nest egg has shrunk as a result of market turmoil but you continue to take the same amount of money out of it each year, you might be increasing your odds of running out of money sooner than you had planned.
Conventional wisdom suggests increasing the amount you withdraw from your portfolio each year by enough to account for inflation. However, if inflation is relatively benign, doing away with those yearly increases for a year or two might be the simplest way to slow withdrawals.
However, that may not be enough. If you’re withdrawing, say, 4% of your portfolio per year but you’re concerned about losses in your portfolio, don’t automatically withdraw the same dollar amount in upcoming months. Calculate what 4% of your portfolio’s current value means in dollars and take that into account when reviewing your current budget. For example, if you’ve been withdrawing 4% of a $1.2 million portfolio that is now worth $900,000, you may be able to help preserve the longevity of your portfolio by withdrawing $36,000 this year–4% of $900,000–instead of the previous $48,000.
You also may want some expert help in determining whether your withdrawal rate itself–the percentage of your portfolio you withdraw each year–needs to be adjusted to try to help extend your portfolio’s life. Looking at how you might trim your budget or find additional sources of income might help you avoid having to sell stocks at an inopportune time.
If you have questions or need assistance, contact the Experts at Henssler Financial: