Question: I am getting dozens of answers regarding how much I need to have in retirement to comfortably do so. I have $1.4 million and own my house outright in California. I want to retire in three years, which will be my 63rd birthday. What is a percentage I can be comfortable taking monthly at that time to not exhaust my principal before death?

Answer: To answer your question, we sought the advice of two financial planners. Here's what they had to say:

Jim Koch, president of Koch Capital Management

First off, you need to determine your outflows, your expenses, during retirement, says Jim Koch, president of Koch Capital Management. "You need to determine what your household wants to spend in retirement and determine its feasibility," he says.

If you have high risk tolerance and prefer financial assets (stocks, bonds, cash) to fund retirement (or what Koch refers to as an Insanely Hopeful funding type), you can probably safely start distributions somewhere around 1.92% and increase the distribution amount annually by inflation, and still have some portfolio assets left over for legacy wishes. "At this starting distribution rate, the total annual distribution amount is $26,880 plus whatever Social Security and pension income is generated," says Koch.

How did Koch come up with this starting withdrawal rate of 1.92%? "It's an educated guess based on Wade Pfau's regression formula of past 50/50 portfolio draw downs over a 30-year period," he says. "It's better than a pure guess given it factors in the market's current Shiller P/E (30.35) and the current 10-year Treasury yield (2.48% as of May 8, 2019), but it's still just an educated guess based on a regression model with estimation error."

If, however, you're risk averse, then your household's funding profile is what Koch would call Sleeps Like A Baby, and that means you could put all you $1.4 million -- (Koch is ignoring asset location and taxes right now) in an immediate annuity yielding 6.76% (quote courtesy of for a fixed distribution amount of $94,640 per year throughout your lifespan.

Generally, says Koch, household retirement funding investments reside somewhere on a spectrum between owning all risky assets and owning all safer income assets in a proportion that is appropriate, based on many different factors not just risk tolerance, to that household.

"But a single, safe, sustainable withdrawal rate number is unknowable," says Koch. "Whatever that idealistic distribution rate is for your household today, it changes tomorrow, and the day after tomorrow, and so on. The best I can say for rough planning purposes is that your 'ideal' distribution rate will vary between a lower bound of 1.92% increasing with inflation and an upper bound of 6.76% flat rate."

But in the absence of knowing your household's sources of income in retirement and your expenses, your current investment account allocations and account types, mortality estimates, annuity rider preferences, specific legacy wishes and the like, Koch says "it's just a guess with broad outcome variability."

One last thought. Koch, who lives in California and who has clients in California, frequently sees annual retirement budgets in the $120,000 to $200,000 range. "The devil is in the details, but so is planning for the unexpected," he says.

Brian Gawthrop, a certified financial planner with Robinswood Financial

The short answer, says Brian Gawthrop, a certified financial planner with Robinswood Financial, is: "It depends." And, no matter what withdrawal rate you choose he recommends "monitoring closely and frequently with a skilled adviser."

The long answer is this: The general rule of thumb many advisers use is that you can take out 3% to 5% per year and not erode the principal, says Gawthrop. "This rule of thumb is based on some underlying assumptions, though, and we all know what assumptions might do to you and me if you aren't aware of them," he says.

The general calculation goes like this to avoid the erosion of principal: portfolio return = withdrawal rate + adviser fee + inflation.

For example, let's assume the following: 8% = 4% + 1% + 3%.

Using some basic algebra, we have: withdrawal rate = portfolio return - adviser fee - inflation.

"Like any multivariable equation, though, there isn't just one answer," says Gawthrop. "In this simplified version, there are four different levers to adjust, and that is just for a gross withdrawal rate. We aren't even talking about taxes, yet."

So, let's start with portfolio return. The average return for the S&P 500 index from 1926 through 2018 is 10%. For more on this, take a look at Matrix Book 2019: Historical Returns Data, U.S. Dollars.

Averages are deceiving, though, and can be quite frustrating when it comes to assumptions for your retirement, says Gawthrop. "If, say, you retired in the year 2000 and had 100% of your investments in the S&P 500, your annual returns for the next 5 years would be -9.1%, -11.9%, -22.1%, +28.7%, +10.9%," he says. "This would leave you with an average annualized return of -2.3% for that 5-year period. Welcome to retirement, huh?"

If you were to pull 4% from your portfolio each of those years, it wouldn't just lower your overall returns by 4% each year, it would also decrease the likelihood of your portfolio rebounding, says Gawthrop. "More recently, the S&P 500 index returned an average annualized performance of 8.5% in the five years between Jan. 1, 2014 and Dec. 31, 2018," he says. "It was a quite a roller coaster, though, with annual returns of 13.7%, 1.4%, 12.0%, 21.8%, and -4.4%, respectively."

As for an adviser fee, you can eliminate that one altogether, if you were a true DIY'er. "If you continue to read, though, you might reconsider cutting this expense," he says. "Also, not all advisers charge 1%. Some charge more, some charge less, some charge an hourly fee, etc." (Full disclosure: Gawthrop charges - for non-institutional clients - 0.75% for the first $1 million, then it is capped at $7,500 year per year.)

For 2018, inflation (as measure by the U.S. consumer price index or CPI), was 1.9%. Since 1926 it has averaged 2.9%. Again, averages can be deceiving, though. From 1977 to 1982, the average annualized rate of inflation was a whopping 10.1%, says Gawthrop. The average annualized rate from 2000 through 2018 has been 2.2%. Also, depending on your geographic location and also the nature of your spending (medical costs have risen much faster than groceries for example), this rate could vary dramatically.

"A major component that isn't accounted for in this rule of thumb is your own personal tax rate," says Gawthrop. "As you probably know, tax laws changed for 2018 tax year and they will most likely continue to change over time. So, if your retirement paycheck is being pulled from a traditional IRA or some other 'pre-tax' account, the ordinary income tax rate will play a large part in your 'take-home' spendable dollars. If you are pulling your retirement income from a non-IRA account (a brokerage account for example, you need to be aware of the tax rate on interest, dividends and also short/long capital gains."

In 2019, if you are filing single, and your taxable income falls below $39,375, your long-term capital gain rate is probably 0%, says Gawthrop. "For most in your situation, though, it will likely be 15%. If you pull your retirement check from a Roth IRA as a qualified distribution, the entire paycheck could be 100% tax-free," he says.

"Now, we come to the withdrawal rate and also my argument for having a high quality financial adviser," he says. "What if there was a way to take advantage of the healthy 'average' return of the markets, but have the stability of a steady retirement 'paycheck?' This is where your cash reserve should play an enormous roll, acting as a buffer between your turbulent portfolio and the steady withdrawals you would like to take in retirement."

You should have, says Gawthrop, at least three to five years of living expenses less any fixed income like Social Security or pensions held in cash. "Why would you want to have that much cash when you clearly need to have growth in your portfolio?" he asks. "Well, think of the cash as your pantry and your investments as your field of crops. Some years, your crops do well and you can live directly off of them. But, some years you might have a drought or some other event out of your control, that will make you very grateful to have a full pantry you can live off of for several years."

Typical market cycles, Gawthrop says, are three to five years, so this is where the three- to five-year pantry of cash comes into play. "In 'good years,' restock your pantry," he says. "In 'bad years,' just live off of your stored cash. Given all of the variability, not to mention the tax rates and your own income needs, your financial adviser should be going over the 'projected versus actual' numbers with you each year so that course corrections can be made, if necessary. For example, you may want to accelerate the date of a big vacation in a 'good year' or push out the timeline of a car purchase following a 'bad year.'"

The more years of cash you have in reserve, says Gawthrop, the more you can follow the general "rule of thumb" using average returns because you can smooth out the peaks and valleys with cash in the pantry. And the more conservative you are, the more years of cash you should keep in reserve while letting the balance of your investments ride the roller-coaster of investing. (Gawthrop added this disclaimer for the record: His comments are for informational purposes, only. You should seek personalized advice for your own, unique, situation.)

Editor's note: By way of history, here's the article that laid out the case for using 4% as a safe withdrawal rate.

Got questions about the new tax law, Social Security, Medicare, retirement, investments, or money in general? Want to be considered for a Money Makeover? Email Kim McSheridan assisted with this report.

Question: I am getting dozens of answers regarding how much I need to have in retirement to comfortably do so. I have $1.4 million and own my house outright in California. I want to retire in three years, which will be my 63rd birthday. What is a percentage I can be comfortable taking monthly at that time to not exhaust my principal before death?

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