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The best ratios for withdrawing from your retirement account, according to Edward Jones

A couple looks at their retirement plan while sitting in their kitchen.

A couple looks at their retirement plan while sitting in their kitchen.

One of the most important retirement decisions is choosing how much you want to withdraw from your savings. You need to take just enough to meet your spending needs, but not so much that you end up running out of money.

While there is no real consensus on a safe withdrawal rate, a A recent report from Edward Jones He has three tips for determining the ideal withdrawal rate in retirement. The financial services company recommends sticking to a sustainable rate, adjusting it as needed during market volatility and aligning your spending with your personal goals. This method emphasizes the importance of individual planning and includes specific withdrawal rate recommendations based on your age and risk tolerance.

Talk to a financial advisor about your retirement plan. Find a fiduciary financial advisor today.

What to know about retirement withdrawal rates

A common approach to determining the amount of withdrawal from a retirement account is used 4% the norm. This guideline, developed in the 1990s, suggests withdrawing 4% of your savings in your first retirement year and then adjusting subsequent withdrawals for inflation. Doing so from a well-balanced portfolio ensures that your money will last 30 years.

The originator of the 4% rule, financial advisor William P. Bengen, later revised it to 4.7%. Since then, some experts have warned that the rule may be oversimplifying things and offered alternative strategies.

For example, JPMorgan Chase advised withdrawing no more than 2% to 3% of savings each year, citing persistent inflation, increasing life expectancy and sharply lower returns expectations. JPMorgan suggested looking at a number of factors to create a custom withdrawal strategy, including tax rates, financial obligations, health care expenses, and portfolio composition.

Morningstar research from 2021 found that A 3.3% initial withdrawal rate They were appropriate because of lower bond yields and the potential for stock markets to be overvalued. company since then Updated guidance to 3.8%.. Morningstar also evaluated alternative, more flexible strategies that would involve forgoing, and sticking to, inflation adjustments Required Minimum Distributions (RMDs)Create withdrawal guards and reduce the withdrawal rate by 10% after losses.

Advice for Quitting from Edward Jones

Pensioner smiling while walking.

Pensioner smiling while walking.

Edward Jones suggests The key is not to choose one standard rate and stick to it, but to choose a rate that fits your needs and change it depending on your situation and the changing economic climate. The company offers these three tips to help you find your drawdown rate:

1. First, align your withdrawal rate with your age and risk tolerance: Edward Jones provides initial withdrawal guidelines based on age and risk tolerance. These initial withdrawal rates range from 3.0% for the conservative investor in their early 60s to as high as 8.0% for the less conservative 80-year-old investor.

Early sixties

  • More conservative: 3%

  • Less conservative: 3.5%

Late sixties

  • More conservative: 3.5%

  • Less conservative: 4%

Early seventies

  • More conservative: 4%

  • Less conservative: 5%

Late seventies

  • More conservative: 5%

  • Less conservative: 7%

the eighties and beyond

  • More conservative: 6%

  • Less conservative: 8%

2. Adjust the withdrawal rate as needed: Edward Jones recommends maintaining a flexible pull-up rate, especially during swings. For example, you may need to lower your withdrawal rate or skip annual increases to adjust for inflation during economic downturns.

3. Spend according to your goals and valuesThink about your vision for retirement and make sure that your current spending aligns with the goals and values ​​you set for yourself. For example, if you hope to travel a lot in retirement, try budgeting for that while spending beyond your means. Alternatively, you can emphasize contributing to charity. Focus on supporting your core goals and values.

Additional considerations

Edward Jones explains additional factors to consider when determining a safe withdrawal rate.

  • legacy: If you prioritize leaving assets to beneficiaries in your will, you may want to reduce your withdrawal rate so that you have more to bequeath.

  • investment strategyWhere you invest your money matters. Different weightings between asset classes may result in higher or lower returns, along with varying risk profiles.

  • retirement age and longevityThe safe withdrawal rate formula is based on a 30-year retirement. If you plan to retire early or live longer than the 30-year time frame, adjust your withdrawal rate accordingly.

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A couple reviews their finances and plans for retirement.

A couple reviews their finances and plans for retirement.

Determining the right withdrawal rate is a complex process that requires careful consideration of individual needs, market conditions, investment strategies, and long-term goals. When calculating a safe withdrawal rate that meets your needs, Edward Jones suggests that it should be appropriate for your age, risk tolerance, market conditions, and retirement goals.

Retirement planning tips

  • Consult a financial advisor And staying flexible in your approach can help ensure a sustainable and enjoyable retirement. Finding a financial advisor doesn’t have to be difficult. SmartAsset is free The tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisors to decide which one you feel is a good fit for you. If you are ready to find a counselor who can help you achieve your financial goals, let’s start.

  • Knowing how much you need to save to support your spending needs is a critical component of retirement planning. Smart Asset Retirement calculator It can tell you how much you need to save now to pay for a comfortable retirement in the future.

Photo credit: © iStock.com / Anna Frank, © iStock.com / adamkaz, © iStock.com / Hirurg

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