Episode 164: Mailbag - How Much Can I Spend Yearly and Not Run Out of Money?
Today’s Prep:
Today, we are answering some more mailbag questions from our listeners. How much can you spend without running out of money? How does a 401(k)-rollover work? We’ll answer these and more on today’s show.
Equipping Points:
We are returning to the mailbag on today’s episode to answer some listener questions. We’ll be covering four intriguing questions on running out of money, IRAs, annuities, and 401(k) investment options.
Mary says “I’m 62 and I have about $1.4 million. How much can I spend yearly without running out of money?”
While this might seem like a simple math problem it’s not. Retirement planning considers a lot of different factors. We don’t know how long Mary will live and we also don’t know how she is invested. If she is a high-risk investor that $1.4 million could easily go down. These are the kind of variables we want to consider.
In the financial industry there is a rule of thumb called the 4% rule. It tells us that once you retire you should feel comfortable taking out 4% of your nest egg. While this might be okay for some retirees, we like to sit down with you and run software that will calculate the amount your can be spending yearly based on your unique circumstances.
George asks “I have all of my retirement savings in one IRA. Should I move some of it somewhere else to be diversified?”
We get this type of question a lot. But you can be really diversified inside of one IRA. You can have a wide variety of stocks, bonds, real estate trusts, etc. inside of one IRA.
Depending on your situation though you may want to look into different accounts. Perhaps you want to invest in a fixed annuity or CD. Those are probably things you have to do outside of the IRA you already own.
Mark writes in, “I feel like I need to reduce the risk in my portfolio. But I don’t know where to turn. I’ve looked at bonds, annuities, and just moving to cash. All of those options seem to have drawbacks that I don’t like. What am I supposed to do?”
Why do you feel the need to reduce your risk? Has this been the plan for the last couple of years or could you be getting skittish with the most recent market downturn? We don’t want you to make an emotional decision. We have to understand what drawbacks you are warry of and go from there.
All investments have a SLY component: safety, liquidity, and yields. You need to evaluate the different types of investments and how they compare. Stocks don’t have any safety, but they have tremendous liquidity and long-term yields. In contrast, cash tends to be safe but doesn’t produce as much yield. You have to decide the tradeoff you are most comfortable with.
Doug says, “I don’t like my 401(k) company options. But my company says I’m not eligible to roll the money over into an outside account. I know other people that have done this. So, how does this work?”
Most people that rollover their 401(k) are over 59 ½. Almost every 401(k) plan allows for an end service distribution once you turn a certain age, allowing you to move that money. We’d encourage you to get in contact with your HR department. Ask about in-service distributions and how old you need to be to do a distribution.
If you ever want your question spotlighted on the show or to ask David something about your retirement, email him at [email protected]
Listen to the entire episode or skip ahead using the timestamps below to skip to a particular question.
0:38 – How is David doing?
2:00 – “How much can I spend yearly without running out of money?”
5:55 – “I have all my money in an IRA; should I move it somewhere else?”
9:36 – “How do I reduce the risk in my portfolio?”
13:27 – “How does a 401(k)-rollover work?”
Today’s Takeaway:
“The blunt tool is the 4% rule and it’s a great place to start if you’re a DIYer. If you work with an advisor, you probably have a much more sophisticated plan in place. "
– David Dickens
KC Financial Advisors Blog
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