I Have $1.4 Million in My IRA at 65. What's the Best Way to Make It Last?
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With $1.4 million in your IRA at age 65, you have a robust nest egg that could potentially fund a secure retirement of 25 years or more. However, making sure that money lasts will require prudent planning. You’ll need to assess your income needs, balance investment risk and return, secure supplemental insured income streams, account for required minimum distributions (RMDs) and their tax impact, and thoughtfully tune withdrawal rates for sustainability. But you don’t have to go it alone. A financial advisor can help you plan for retirement and manage your nest egg.
One way to increase the chances that your savings will endure an extended retirement is to use a safe withdrawal rate. The 4% rule, for instance, suggests limiting annual withdrawals to about 4% of total savings in your first year of retirement and then adjusting withdrawals in subsequent years for inflation.
For example, if you retire this year with $1.4 million in an IRA, you would withdraw 4% or $56,000. Your withdrawal next year would account for inflation – say 2.5% – meaning you would withdraw $57,400. Conservative analyses indicate that using this rule will allow your savings to last for 30 years or more and provide for increasing income to accommodate inflation.
Though the 4% rule is a commonly referenced rule of thumb, critics contend that it’s overly simplistic and doesn’t account for evolving income needs. Your specific situation may warrant a different plan. The keys are thoughtfully balancing withdrawal rates, investment returns, taxes, inflation and your life expectancy. Investing appropriately to achieve solid returns while managing risk is also vital. A financial advisor can help you balance these different variables and estimate how much you can afford to withdraw from your savings.
Thoroughly assessing the financial landscape of your life, as well as retirement lifestyle goals can help ensure your $1.4 million IRA adequately supports your needs over the long term. To kick off this assessment, ask yourself:
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What are my basic and discretionary spending estimates?
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What large outlays might I need to make?
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What other income streams do I have?
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How risk-averse am I?
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Do I have an estate plan?
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How will RMDs and taxes impact me?
Your answers to these questions can help inform how you approach withdrawal rates, investments, insurance and contingency reserves.
Now put some effort into budgeting your expected living expenses and accounting for any other sources of income. Social Security payments, pension benefits, annuity payments, part-time work and investment interest can all supplement your IRA withdrawals.
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