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People should start saving for retirement as soon as they enter the workforce, but the fact is that most people don’t. Truthfully, most Americans don’t think about saving for retirement until their nearly old enough to retire. And those who do try to plan, often don’t consult a financial advisor and have a tough time figuring out how much money they’ll need to live comfortably once they stop working. That’s where the Spend Safely idea comes into play.
Basically, the Spend Safely plan suggests waiting until age 70 to withdraw from social security and to use the IRS’ required minimum distribution table to figure out how much to withdraw from other savings each year.
Even if you retire earlier than age 70, you can use a version of the Spend Safely strategy. A study by the Society of Actuaries determined that this strategy works best for people with $100,000 to $1million saved for retirement.
Although this strategy differs slightly from what most financial planners suggest, it may be a safe way to plan. Typically, financial professionals recommend a “4% rule” where you’d withdraw 4% of retirement savings the first year and increase the amount each year to coincide with the rate of inflation. Depending on the return rates, this strategy may not be as effective as it once was.
Instead, trending studies suggest using Social Security like an annuity and consider it to be about 75% of your retirement income. That way, you can keep the rest of your retirement savings in high-return investments for as long as possible.
Of course, no strategy can make up for inadequate savings and how much you can withdraw from savings can vary significantly based on market fluctuations. But, the Spend Safely strategy is simple to follow and enables you to get as much income as possible without running out.