One of the biggest fears for retirees and near-retirees is that your money won’t last in retirement. Making your money last in retirement for possibly 30 years or more, not knowing what lies ahead is daunting. So this week, I’m sharing with you some ideas from my financial planning background and my experience helping many clients make the transition into retirement with confidence, in order to help you better understand your chances of running out of money in retirement. 

Yesterday, I talked about how to calculate what you’ll need to pull out of your investment portfolio to supplement your other income sources in retirement, and whether or not that withdrawal rate is sustainable. 

Today, I’m throwing you a curveball, and we’re talking about taxes. Here’s why taxes are the curveball...the money that you withdraw from your IRA or 401k accounts will be taxable, so you’ll want to figure out the after-tax amount of portfolio income you need, and also factor in the taxes you’ll be sending to Uncle Sam on those withdrawals. The total withdrawal amount including taxes is the number you’ll need to look at to determine if your portfolio withdrawal rate is sustainable or not. 

If you need $3,000/month from your investments, you might need to take out $3,500 or even $4,000 each month when you factor in the taxes on those withdrawals. 

Now here’s the million dollar question - no pun intended. Whatever that amount is that you're pulling from your investment portfolio each month or each year...how do you know that the withdrawal amount isn’t too high? How do you know that you’re not going to run out of money in retirement? 

Here’s where a good financial advisor is worth their weight in gold, because they can run the numbers for you. We do this all the time for clients. We look at their portfolio, their income needs in retirement, their sources of income, and all sorts of other factors. Then we run a monte carlo analysis, which lives their retirement 1,000 times to see how often the plan failed and they ran out of money. It’s incredibly valuable and can course correct when necessary, as long as you do it before you retire. 

So talk to your financial advisor. If you don’t have one, it’s totally worth it to hire a planner to run the numbers for you. Many advisors will do a retirement analysis for you for a one-time flat fee or even as a value-add for free if you are already a client. 

That’s it for today. Thanks for listening! Tomorrow I’m going to share with you how your mix of stocks and bonds influences your chances of running out of money in retirement. 

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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