Nearing retirement or already retired? You're likely wondering how to make sure you don't outlive your savings.
One rule of thumb says that withdrawing 4% per year from your retirement savings can help minimize the chance you'll outlive your money. The hope is that the rest of your retirement nest egg will grow in value and/or pay dividends and interest income.
However, there are a few possible flaws in that scenario. First, because interest rates have been low for the last several years, bonds and other fixed-income investments are providing less retirement income than expected. Second, your income needs may fluctuate from year to year if you face unplanned expenses. Third, if you're investing in stocks or bonds, your savings may decline in value if either of those markets fall. That means a smaller nest egg to draw from.
Finally, inflation will continue to erode the purchasing power of your money over time, forcing you to withdraw larger amounts of money to maintain the same quality of living.
Tapping your retirement nest egg
How do you turn your nest egg into retirement income? Your financial situation in retirement will likely change from year to year and could affect how much money you will need.