Dear Liz: I retired two years ago at age 60 and draw $5,525 a month from two pensions, which covers our necessary expenses. What it doesn’t cover is travel, which we enjoy. To pay for our trips, I’ve been withdrawing $10,000 a year from my 401(k). So far, the account has grown enough to offset these withdrawals. I’d like to wait to start claiming Social Security, since I know that will increase my benefit. Should I continue my annual withdrawal from my 401(k) for the next couple of years and not start Social Security, or apply for Social Security and not touch the 401(k) so it can keep growing?
Answer: You’ve been lucky the past two years, but your luck may soon run out.
Favorable market conditions allowed your 401(k) to make up for your withdrawals, but there’s no guarantee that will continue. Bad markets dramatically increase the chances a retiree will run out of money, since withdrawals are being made from a shrinking account. The money taken out isn’t there to benefit from the inevitable rebound.
That doesn’t necessarily mean your withdrawals, or your travel, has to stop. But you need to have a better handle on how much you can withdraw each year without running a big risk of running out of money. You can get a rough idea by using mutual fund company T. Rowe Price’s retirement income calculator at www.troweprice.com/ric. For the best results, however, you should hire a fee-only financial planner to review your situation and make suggestions about how to make your money last.