Retirement Savings Plan

Making that Savings Last

It has been said over and over again that there are 2 keys to making retirement assets last: asset allocation and managing your withdrawals. However, as you enter retirement you will realize that there countless choices to make. So what are the best ways to increase your chances of retirement success?

Firstly, and obviously, keep a lid on those withdrawals. Research shows that the ‘magic number’ is 4 percent. If you keep your annual withdrawals below four percent, your money has a good chance of outlasting you. Remember, though, that the balance is a moving target—4 percent of a $500,000 balance is $10,000 less than four percent of a $750,000 balance.

Another possibility is to work longer. If you don’t think that four percent is enough to live comfortably, think about working a bit longer. This doesn’t mean work until you are 85, but a few extra years may help. A few extra years in the workforce gives your portfolio more time to grow and reduces the number of years you will need to use that money.

Try to have a cushion. Two to three years' worth of living expenses in a money-market fund or short-term bond fund means you won't have to sell investments when they're down. Also, allocate wisely. The solution isn't ever to have 100 percent of your assets in equities, nor is it to have 100 percent in treasuries and cash. The solution, of course, lies somewhere in between.

No matter your age, you have an IRA rollover in your future. If you're an older baby boomer, and you've been saving smartly in a company plan for a decade or more, you'll be rolling over what could be a six- or seven-figure sum from your 401(k). For younger folks, you have a rollover decision to make every time you change jobs. What do you do?

Don't spend it. It may sound obvious to say don't cash a lump sum out of your current plan and spend it — yet that's exactly what many people do. Big mistake. You'll owe income taxes plus a 10 percent penalty if you're under age 59 1/2, and you'll lose the chance for future tax-deferred growth.