How much to withdraw from retirement account?

My mother has to decide what percent she wants to withdraw from her retirement trust by the end of the month. The percent she decides on will be what she gets each month for all of 2009. The account is way down this year, from around $700,000 to $330,000. Almost all of it is in stocks and stock funds, and it?s not a great time to sell at these low prices.

In the past 8% has always been taken out. I would guess that may be too much. I have read that around 4% is often recommended.

I don?t have much confidence in her bank. They created a risky portfolio of 98% stocks and they have been having her withdraw 8% all the years she has had the trust. My mother is in her seventies, but healthy, and may need the money for years to come.

She has never paid a lot of attention to her finances before, and neither have I. She put together a budget for the first time, but I don?t know how accurate it is. I think it would probably be good for her to go to in independent financial planner or accountant. Unfortunately there isn?t much time to evaluate planners by the end of the month.

What suggestions does anyone have?

Reply to
tighwad
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How much does she estimate she really needs? If she has not done so already, compute her expected monthly living expenses on a spreadsheet. Deduct income from other sources, like IRAs, social security, pensions, interest on CDs, etc. Only then can we talk intelligently about how much to withdraw.

Reply to
honda.lioness

To generate some discussion, here is a we're-in-a-recession alternative:

Given she is 70ish, in good health and finds herself in (hopefully temporary) reduced circumstances, my proposal would be to calculate what income 4.5% will generate, and make a budget on that amount (include the items lioness mentioned). If that is too tight, it nevertheless is what we have and her job is to make lifestyle changes so that 4.5% works.

There are consequences to our actions. In this case ignoring her investments has put her in this situation. Trying another approach (by any name, spending more than 4.5%) is what I call the "Watergate reaction". Some of us remember the Watergate affair, where the coverup was far worse than the actual deed. In Watergate, had those who made bad decisions had just taken their medicine, the problem would have been significantly less damaging than what ultimately occurred.

As a side note, it seems that her investment allocation is skewered. But a severe bear market is not the time to be making investment decisions or changes, so my standing suggestion is to wait for Dow

14,000 then revisit her allocations. Until then, it is what it is and her job is to make changes so that 4.5% works.

-HW "Skip" Weldon Columbia, SC

Reply to
HW "Skip" Weldon

She thinks she needs around $50,000 total. She can get about $39,000 from other sources, so actually she may only need about $11,000 from her trust. So perhaps she could get by with about a 3-4% withdrawal from her trust, correct? There could be a problem if the balance of the trust goes down a lot more in 2009.

I could lend her some money if she needs it. I have a fair bit in my money market account.

Reply to
tighwad

IIRC she has no control over the investments in the trust, correct? So the only control she has is how much to take out every year? Just as everyone has to take a hard look at his/her budget, retirees will have to do the same. She'll have to tighten up her belt just like the rest of us.

Reply to
PeterL

I support the above plan with one caveat that I should have mentioned earlier: What provisions have been made for long term nursing care for the one day when she may need skilled nursing round-the-clock? This is the time to start considering this, rather than when, gosh forbid, she suddenly has a stroke and decisions have to be made hurriedly.

Remember to consider taxes. Make use of the moderated newsgroup misc.taxes.moderated as needed. Once you get used to the mod's unfortunate beer hall humor ;-), it is a pretty helpful forum.

Ditto Skip's suggestion, modified a tiny bit for the new specifics given above.

I wish I could say the past predicts the future. Take it all year by year, with intermittent monitoring and careful queries and study of the situation throughout.

I think this is crossing into the "friendly sibling advice needed" area. Which is fine and still on topic. It is just getting subjective and morals-oriented. What I call "elder wisdom" is key: What serves families' happiness best? I am no spring chicken but neither am I in the "elder wisdom" category. All I would note is that you do not have legal authority over her financial affairs, correct? Hence I advise not lending lend money to your mother with an expectation you will get it back. Lend it/give it with love, or do not give it at all.

Reply to
honda.lioness

So are you saying she should take out 4.5% from her trust? If so, to calculate what that would generate; wouldn't I just multiply her balance by 4.5% ($330,000 X 4.5% = $14,850)?

, my proposal would be to calculate

Reply to
tighwad

I was searching for old threads about retirement funding, and how much in general you need, along with how much to withdraw...

SO - if you are withdrawing 4.5% - then how do you calc the future.... amount needed, time line, etc ie - if withdrawing 4.5%, then if it was a static account, how long would it last ? next - if it is growing - say with a fixed income of 2.5% - how long would it last and then, if it needs to last till say 90 - then what portfolio changes are needed ?

Reply to
pschuman

Those 4%-5% kinds of rules of thumb assume the following: You begin in Year One with that withdrawal amount (e.g. 4%) You increase that withdrawal each year by the inflation rate You don't change your withdrawals at all even if they become 20% of the account value You invest in - often - some kind of rote "balanced" mix like 60/40 stocks/bonds, with returns and their variability estimated by broad-market indices in those asset classes

And the 4%-5% rates are deemed "acceptable" if you stand a minimal chance of outliving your assets.

But if you simply withdraw 4.5% of principal per year, and your assets earn 2.5%, there's a simple answer for how long you can do that: "forever". The same is true if they earn 0%. If you withdraw a flat 4.5% of the account in year one and never change the dollar amount, while earning 2.5%/year, you deplete the account in about 33 years (use any financial calculator: PMT=.045, PV=-1, FV=0, %i=2.5, solve for N). If you increase withdrawals each year a bit, how long the account lasts will depend entirely on how much you increase them.

Much of "wealth preservation" during retirement hinges on not taking out money, and not backing off from long-term investment choices for the portion of your account you'd use 15, 20 years from now, at the times that your investments perform poorly. That's why this year's waiver of minimum distribution requirements for IRAs is such a good idea, even for those owning relatively conservative investments like high-grade corporate bonds (which had a bad year alongside stocks) or TIPS (-20%+ peak to trough?).

-Tad

Reply to
Tad Borek

If the retirement trust is taxable, she can take $100,000 and buy a lifetime annuity paying her $800/month. That would leave her with over $200,000 in the trust fund to grow as the stock market recovers.

-- Ron

Reply to
Ron Peterson

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