It’s one of the most daunting financial challenges you’ll ever face: ensuring that the savings you’ve built during your career will support you through retirement. But it doesn’t have to be that hard, says personal finance commentator Jane Bryant Quinn. In the following excerpt from her new book, How to Make Your Money Last: The Indispensable Retirement Guide, Quinn lays out a three-step plan for financial security after you leave the working world.
This is the fourth book for Quinn—including the bestselling Making the Most of Your Money NOW. She was a columnist for Newsweek and, as part of the Washington Post Writers Group, syndicated in more than 250 newspapers. She also spent a decade at CBS News, where she appeared on the network’s morning show and the CBS Evening News with Dan Rather.
In her latest book, Quinn covers everything baby boomers and their heirs need to know about making a nest egg last: from getting the most out of Social Security to buying yourself a pension. Through it all, Quinn preaches simplicity, which is how she handles her own investments. In this excerpt, Quinn explains how to make your retirement portfolio last three decades or more—and even leave something behind for your family.
That will take figuring out how to manage your savings—and choosing the right investments throughout retirement. Here’s how to get started.
Pick the Right Withdrawal Rate
The first thing on the road to retirement security is figuring out the answer to this question: How much can you spend from your nest egg every year without eventually going broke?
We’re talking about your portfolio—stocks, bonds, mutual funds, certificates of deposit, and so on. The spending rate is your speed limit. It helps ensure that your money will last as long as you do.
Some retirees manage their spending so well that they can live entirely on whatever income they receive from their pensions and Social Security. Most of us, however, will depend partly on our savings to pay our monthly bills. That’s why spending rules are so important, even when you don’t follow them to the letter. They save you from accidentally using up too much of your money when you first retire.
The classic spending rate is 4% of your total savings in the first year you retire or start drawing on the money. In each following year, take the same amount plus an increase for inflation. Properly invested (more on that later), your money should last at least 30 years. You can start with 4.5% if your portfolio is well diversified.
Those rules have been the gold standard in financial planning ever since they were developed. They would have carried you through the worst periods the U.S. economy has endured, measured from the mid-1920s. For any period better than “the worst,” your money should last longer than three decades.