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How do I Determine the Correct Retirement Withdrawal Amount?

By Angela Crout-Mitchell
Updated May 17, 2024
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Determining the correct retirement withdrawal amounts involves looking closely at the amount of money that has been saved, the current financial fluctuating returns on portfolio investments, and the economic market at the time of retirement. The annual retirement withdrawal rate is compiled by carefully analyzing the anticipated expenses of the retiree, including basic needs such as housing, utilities, transportation, food, and medical expenses. It will also include recreation and travel expenses if the person plans to use the funds for traditional retirement activities and pursuits. If the person is planning to retire before the regionally set age of retirement, most 401K or IRA plans are designed to require a penalty fee, and the amount of funds may be drastically reduced by the early withdrawal. Most financial experts recommend speaking to a qualified professional for assistance in choosing the most appropriate retirement account withdrawal rate.

Before choosing the retirement withdrawal rate, the retiree has to review their savings, 401K or IRA investments, and any other income sources they expect to draw on during their retirement for an accurate count of the funds available to them. This amount should be compared to the age of person retiring, their health, and life expectancy. Many people also consider if they plan to leave an inheritance to their children and remaining family members. If so, that amount is considered into the long term withdrawal plan.

When choosing to set a retirement withdrawal rate, it is also important to look at the current return fluctuating rates. Retirees are encouraged to review the recent historical up or down trends occurring in the last 20 years or so prior to their retirement date. In many cases, this time period is a good overview of the trends of the financial market and may help indicate if the retirement fund is well insulated against financial fluctuations. It is crucial for the retiree to understand that once they begin to withdrawal money from their retirement funds, they no longer have the opportunity to recover from potential market losses.

In addition to normally fluctuating returns, it is advisable to consider the current economic realities when determining retirement withdrawal amounts. Inflation, or the potential of the price of items and services rising over the course of time, is an important consideration when calculating how much money is needed during retirement. Most areas of the world experience a varying inflation increase each year. Financial professionals can be of great use in assisting the retiree account for this increase as well as other factors in regards to planning for retirement.

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