Step 13: Quitting Time

CAN YOU AFFORD TO retire—or should you tough it out in the workforce for a few more years? It’s time to run the numbers.

First, take all your retirement savings and divide that amount by 25. That’ll tell you how much you could potentially withdraw from your nest egg each year, assuming a 4% withdrawal rate. Be warned: You might need to make those withdrawals during a major market downturn. As a precaution, consider keeping five years of portfolio withdrawals in a money-market fund, a high-quality short-term bond fund and other conservative investments.

To supplement these portfolio withdrawals, you’ll have any pension income, plus Social Security. If you’re in good health and you’re single, often the smart strategy is to delay Social Security benefits until age 70, so you have a larger stream of inflation-indexed income to carry you through a retirement that could last decades. What if you’re married? The spouse with the higher lifetime earnings should typically postpone benefits until 70, while the other spouse might claim benefits earlier. For further help, check out the Social Security calculator from Oblivious Investor’s Mike Piper.

Doesn’t look like you’ll have enough income? In addition to delaying retirement or working part-time in retirement, you might use part of your savings to purchase an immediate fixed annuity that pays lifetime income. That should deliver more income than you’ll get with the 4% withdrawal rate. How much more? Try the Guaranteed Income Estimator from Fidelity Investments.

Still not enough? You might tap home equity. First, look into trading down to a smaller home, thereby reducing your monthly costs and freeing up home equity, which you can then add to your retirement savings. Later in retirement, if you start to run out of savings, you might consider a reverse mortgage. To see how much cash that might provide, head to and play around with the site’s calculator.

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Previous: Step 12: Pay Off Debt

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