Distribution Planning for Retirees: Ideas to Make Your Money Last
As a retiree, you’re likely looking for ways to make your money last as long as possible. One way to do this is through distribution planning. This process involves figuring out how much money you need to live on and then withdrawing that amount from your retirement account each year.
There are a few different ways to approach distribution planning, and the method you choose will depend on your individual circumstances. In this blog post, we’ll explore a few of the most popular methods so that you can decide which one is right for you.
The Four Percent Rule
One popular method of distribution planning is known as the four percent rule. This rule suggests that you withdraw four percent of your retirement account balance each year. For example, if you have a retirement account balance of $100,000, you would withdraw $4,000 in the first year.
The advantage of this method is that it’s relatively simple to calculate how much money you need to withdraw each year. The downside is that it doesn’t take into account variations in inflation or changes in the markets. As a result, this method may not be suitable for everyone.
The Modified Four Percent Rule
The modified four percent rule is similar to the regular four percent rule, but with one key difference: withdrawals are adjusted for inflation each year. So, using the same example as above, if inflation was two percent in the first year, you would adjust your withdrawal upward to $4,080 ($4,000 x 1.02).
The advantage of this method is that it provides some protection against inflation. The downside is that it can be more difficult to calculate how much money you need to withdraw each year since you need to factor in the rate of inflation.
The Income-Based Method
Another popular method of distribution planning is known as the income-based method. This approach involves withdrawing enough money from your retirement account each year to cover your living expenses. Any money left over can be reinvested or used for other purposes.
The advantage of this method is that it’s flexible and can be easily adapted as your circumstances change. The downside is that it requires careful budgeting and record-keeping to make sure you don’t overspend and run out of money prematurely.
No matter which method you choose, distribution planning is an important part of making your retirement savings last. By carefully considering your options and selecting the approach that’s right for you, you can ensure that you’ll have enough money to cover your living expenses throughout retirement.