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Common Retirement Questions: What Should I Do To Make Sure I Don't Run Out of Money In Retirement?

The last in the top 10 common retirement questions is here! Here's what our expert has to say.
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Retirement Daily’s Robert Powell sits down with Dana Anspach from Sensible Money to tackle the 10 most common questions in retirement.

In today’s episode, Anspach discusses the final most common retirement question: What formula or retirement strategy should I use to make sure that I don't run out of money during retirement?

One formula that Anspach sees people use is the 4% rule, where they expect to withdraw 4% from their portfolio a year. This would increase over time with inflation and should last for a 30-year timeframe. However, there are some reasons why people don't follow this formula. “Most of us don't spend in a nice neat fashion. One year we might need $52,000, and the next year, we might only need $36,000,” Anspach says. “[Also] retirees generally don't need their cash flow to increase at the same pace as inflation. They will need a little bit more each year to cover the natural increase in prices for food and gas and some of our basics, but in studies of real retirees, their spending tends to slow down in mid-retirement.”

Anspach also discusses a dynamic strategy where you take out more money in years where there is a market increase or where there is more money in your account than before. However, for years where your portfolio value goes down 10% or 20% from the year before, you would initiate a reduction in your withdrawal. What accounts for this is the "funded ratio," which is where your withdrawals are projected over a lifetime and are calculated in a ratio to determine how much you can take out at any point.


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Another strategy that Anspach suggests is the RMD strategy. This is a formula that takes the year-end balance and divides it based on age and says that a larger portion of the remaining balance should be drawn each year as the person ages. For those who might not need to take RMDs, they can also gift a portion of it to charity through a qualified charitable distribution via their IRA. It’s also a good idea to transfer the remaining portion to investments.

For those who are worried about running out of money, Anspach says that advisers tend to run stress tests every year to make sure that the plan works, but people should have a way of projecting their account balance over their lifetime, including the withdrawals they plan to take using a realistic assumed rate of return and seeing if the money will last. “I had this couple and even into her 80s, she loved to decorate,” she says. “So we agreed that she could keep her decorating budget up until her portfolio hit a certain minimum point, and in her case, that point was about half a million. If our portfolio at the end of any year ever dipped below half a million, then we would need to restrict that decorating budget.”

Anspach wraps up by saying that there are a lot of moving parts to retirement, and she commends those who have tuned into this series to learn about the most common retirement questions.

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