If you are anticipating a retirement date in the next five years then you have no doubt begun to search for the answer to "how much can I withdraw from my 401K"?
If that is indeed your story then you have undoubtedly run across hundreds of stories on the internet about the 4% rule. The 4% rule simply says that if you have $200,000 in a retirement account then you can safely withdraw 4% of that money out annually.
Let's see how that works in reality. I will be using this nifty site to make my calculations, you can access it here.
First, let's see what 4% of $200,000 is on an annual basis. The answer is $8000. Nearly all the financial planning gurus will tell you that if you have $20000 in your account then don't withdraw more than $8000 a year out. By the way, $8000 annually is $666 a month. Let's plug those numbers into the calculator that I gave you above. Starting with $200000 at $666 a month with no annual increases at a reasonable 3% return rate in a 12% tax rate your money will last over 30 years.
If you start withdrawing your money at age 66 your money will still not have run out at age 96. Let's face it, the average man in the U.S. will live to 81 and the average woman will live to age 86. Now if you are just 'hell bent" on leaving your kids (if they are still alive) your remaining 401K then by all means use the 4% rule. But let's rethink this rule just a bit.
Let's consider the 6% rule. Six percent of $200000 is $12000. The 6% rule will allow you to withdraw $12000 a year or $1000 a month. How long will that allow your money to last? Using the same calculator we get $200000 at $1000 a month with no annual increases at a reasonable 3% return rate in a 12% tax rate your money will last 22 years. If you start taking this 6% monthly distribution at age 66 you will finally run out of money at age 88.
If you live to age 88 then there are probably so other options to help when your money runs out of your 401K. Maybe selling the house or using a reverse mortgage. Maybe you are going to live with one of the kids or possibly be in a care facility. I don't know your circumstances and you probably won't even know your circumstances at that point. But the difference between $666 a month and a $1000 a month is pretty substantial and worth considering the appropriateness of the 4% rule.
The chances of living to 96 are pretty slim and you wouldn't be that much of a gambler to use 5% or 6% distribution to put your retirement budget together. Remember, you can always make adjustments along the way.
If that is indeed your story then you have undoubtedly run across hundreds of stories on the internet about the 4% rule. The 4% rule simply says that if you have $200,000 in a retirement account then you can safely withdraw 4% of that money out annually.
Let's see how that works in reality. I will be using this nifty site to make my calculations, you can access it here.
First, let's see what 4% of $200,000 is on an annual basis. The answer is $8000. Nearly all the financial planning gurus will tell you that if you have $20000 in your account then don't withdraw more than $8000 a year out. By the way, $8000 annually is $666 a month. Let's plug those numbers into the calculator that I gave you above. Starting with $200000 at $666 a month with no annual increases at a reasonable 3% return rate in a 12% tax rate your money will last over 30 years.
If you start withdrawing your money at age 66 your money will still not have run out at age 96. Let's face it, the average man in the U.S. will live to 81 and the average woman will live to age 86. Now if you are just 'hell bent" on leaving your kids (if they are still alive) your remaining 401K then by all means use the 4% rule. But let's rethink this rule just a bit.
Let's consider the 6% rule. Six percent of $200000 is $12000. The 6% rule will allow you to withdraw $12000 a year or $1000 a month. How long will that allow your money to last? Using the same calculator we get $200000 at $1000 a month with no annual increases at a reasonable 3% return rate in a 12% tax rate your money will last 22 years. If you start taking this 6% monthly distribution at age 66 you will finally run out of money at age 88.
If you live to age 88 then there are probably so other options to help when your money runs out of your 401K. Maybe selling the house or using a reverse mortgage. Maybe you are going to live with one of the kids or possibly be in a care facility. I don't know your circumstances and you probably won't even know your circumstances at that point. But the difference between $666 a month and a $1000 a month is pretty substantial and worth considering the appropriateness of the 4% rule.
The chances of living to 96 are pretty slim and you wouldn't be that much of a gambler to use 5% or 6% distribution to put your retirement budget together. Remember, you can always make adjustments along the way.
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