This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Frugal Retirement: How to Live on Less

NEW YORK ( MainStreet) -- How much of your retirement savings can you withdraw each year -- 7% or 1.8%? Or something in between?

The answer, of course, will make a huge difference in your lifestyle. Fortunately, if you need a smaller withdrawal to keep your nest egg going, it may not have to be permanent, and people in or near retirement can consider some attractive short-term lifestyle changes to keep life interesting on a reduced budget.

You could find yourself living large or living on little. Here's how to be flexible and frugal with your funds.

The key: Keep flexible by avoiding big long-term commitments such as a second home, a large mortgage, oversized car payment or owing a pricey, unsalable condo with big association fees.

Since the early 1990s, many financial advisers have recommended starting retirement with a 4% annual withdrawal rate, or $40,000 for a $1 million nest egg. If you start there, you can increase the annual withdrawals by enough to offset inflation and keep going for 30 years.

That was the theory, anyway. But recent research says that as conditions change the withdrawal figure could be as high as 7% and as low as 1.8%. That impressive $1 million nest egg could therefore generate a tidy $70,000 a year, or a stingy $18,000 -- before taxes.

The first thing to note is that unless you can live on a very, very low withdrawal rate, your fund would have to include some stocks and long-term bonds as well as cash. After all, a five-year certificate of deposit yields only 1.157%, according to the BankingMyWay.com survey. But stocks obviously have risks, and you could face lengthy downturns.

The second point: You might well have to trim your withdrawals if the markets dip. Taking a full withdrawal when your stocks are down could inflict permanent damage on your nest egg, especially if the markets stayed down for several years.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%
TSLA $206.79 0.00%
YHOO $44.45 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs