How to avoid outliving your retirement nest egg

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.

Create an income floor
To create a lifetime stream of income consider taking some of the funds from your nest egg to purchase an immediate fixed annuity, which will pay you a guaranteed stream of income for life.1 By only taking lifetime income from a portion of your assets, you maintain control of the rest of your money to spend as you want. 
How much should you annuitize? Determine how much money you’ll need each year in retirement for fixed expenses like food and shelter. Next, calculate how much yearly income you’ll get from Social Security and any pensions.  If Social Security and pension income don’t meet your basic expenses, consider an annuity to bridge the gap.
You don’t have to annuitize all your money at once. You can annuitize chunks of money over time to keep more invested in equities and bonds when early in retirement. This may help reduce interest-rate risk, since annuity payments are based partly on current interest rates.
When to start getting Social Security
The age at which you first claim Social Security can be a big factor in determining your drawdown strategy. You can elect to start taking benefits as early as age 62. But there may be advantages to waiting until you’d receive full benefits. If you wait until full retirement age (65 to 67), you can receive full benefits. If you wait beyond full retirement age to claim benefits, they increase even more each year until you reach age 70.
Withdrawing your retirement savings
For the part of your savings you don’t annuitize, consider making withdrawals based on your income needs for that year, as well as the underlying investment performance of your nest egg. For example, you might postpone a big vacation after a year in which your assets fall in value.
Planning to leave something behind to heirs or charity? Consider your drawdown strategy. If you’ve created an income floor through an annuity and maxed out Social Security benefits, that helps to minimize what you draw from your nest egg each year, potentially giving you more assets to pass on to heirs.
Determining your retirement income strategy can be complicated. Your TIAA Consultant can help you develop your drawdown strategy for your retirement savings.

1 Guarantees are backed by the claims-paying ability of the issuing company.

No method of investing can ensure a profit or guarantee against loss.

The information is provided for informational purposes only and is intended to engage you in thinking about your financial planning needs. Of course, each person's results will vary based on various factors, including, but not limited to, the products or strategy selected. Certain products and services may not be available to entities or persons.

This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor’s personal advisor based on the investor’s own objectives and circumstances.
 
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