Using Your Retirement Savings

Congratulations, you are retired and now you are in the fun stage of spending your retirement savings. What is the best approach to doing this?

One option is the 4% rule: Withdraw no more than 4% of your portfolio the first year of retirement and then increase that amount for inflation each year. And indeed, if you do this, there will be roughly a 90% chance that your money will last at least 30 years.

The option that I prefer is to maintain a blend of investments that gives stability and growth. You need to have a balance of equities (stocks) that give longer term growth and short term bonds plus money market accounts that give stability in a diversified approach. You need to do the opposite of your emotion and use some common investing sense that equities go down when you least expect it and go up when you least expect it:

• When equities are down and are on sale and you are told that things are terrible, like the last 6-8 months, instead of selling them, sell short term bonds & money market account.
• When equities are up and are at a premium and you are told that things are great and only getting better sell them and keep your short term bonds and money market account.
  

Other Timing considerations include:

1. If you're retiring when the markets are in turmoil, hold off for a year or two so that youl avoid pulling money from your savings during a falling market. If waiting isn't an option or you've already retired, consider part-time work or a consulting gig. The more you bring home, the less you have to tap savings.
2. Rein in the withdrawal amount, especially from the equities in your retirement accounts. You can't control the market. But you can limit the damage of weak returns by holding the line on withdrawals.
3. Scale back or putting off larger expenditures such as replacing your car or taking a major trip abroad. Any cutbacks you can make will give your savings a chance to recover.

If you have the right balance with your retirement savings, you should relax when normal market fluctuations occur. It is important to tweak and fine tune withdrawals and expenditures. Talk to your investment professional before you make any significant changes in your withdrawal strategy.