When the day comes for you to begin
drawing a retirement income, will you
know how much you can withdraw
safely from your investment accounts?
If you don't have a withdrawal plan, you
may run the risk of taking too much and
running out of money during your
lifetime, or being too cautious and living
on less income than you need to
maintain your lifestyle.
A systematic withdrawal program may
help stretch the life of your accounts to
last for a certain period or even
indefinitely, depending on your goals.
Choose Your Variable
A systematic withdrawal plan enables
investors to schedule a regular series of
payments (monthly, for example) from
an account that is pursuing an
investment return. The most efficient
way to draw from the account can be
calculated by striking a balance
between certain variables related to the
Assume that an investor
with a $1 million account is earning a
hypothetical 7% annual return. If the
investor wanted to take $100,000
income per year, the principal and interest would last about 17 years. But if the investor wanted the
account to last longer, he could take less income. To preserve the principal indefinitely, he could draw
$70,000 per year, and theoretically the account balance would never run out as long as the return
was at least 7%. This hypothetical example is used for illustrative purposes only and does not
represent any specific investment.
If inflation protection is desired, annual withdrawals can be indexed to the inflation rate,
but typically at the expense of other variables, such as a shorter account life or a lower starting
An account that is being used for systematic withdrawals should typically be exposed to
moderate risk levels at most. Catastrophic losses could interfere with the account's long-term ability to
produce income. If a greater potential return is desired, an individual may be able to adjust other
variables, such as basing annual withdrawals on account performance.
Making the most efficient use of the money in an investment account involves taking stock of
personal financial circumstances and goals. Making a careful calculation before you begin
systematically taking money from your investments may help ensure that your money lasts as long as
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