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Colleen's Corner

Asset Allocation

Often financial "experts" make asset allocation difficult to understand. My goal in this series of articles is for you to understand asset allocation thoroughly, in an easy to understand format.
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What's Your Ideal Retirement Withdrawal Rate?

Colleen Mulder-Seward, MBA
Retirement Calculator, Inc.
What's Your Ideal Retirement Withdrawal Rate?

If you are planning for retirement, your head is probably spinning with questions like these:

  • How can I do a retirement calculation?
  • Will my money last throughout my retirement?
  • How much money can I withdraw from my portfolio each year (retirement withdrawal rate)?
  • How should my money be allocated?
  • How will inflation impact my purchasing power?
  • How will management fees affect my portfolio's performance?
  • How do I keep up-to-date on the latest news impacting my retirement?

Fortunately, most of these questions can be answered painlessly through the use of a retirement calculator, like the one found at retirementcalc.com.

How can I do a retirement calculation?

This question is easily answered by using retirementcalc.com's calculator. Retirement Calculator Version 3.0 is easy to use and includes all these great features:

  • How management fee's impact how long your money will last
  • 1973/1974 & 2000/2002 historical economic downturn
  • 30 year projections
  • Inflation factor enhancements
  • Interactive retirement asset performance analysis
  • Colorful graphical interface
  • Big charts & graphs with new capabilities
  • Real-time "what if" retirement analysis on the fly
  • Actual vs. Hypothetical vs. Inflation Proof retirement analytics
  • No additional programs are required to run Retirement Calculator 3.0
  • Runs on all Microsoft Windows Environments
  • Easy upgrade to Retirement Intelligence Information Services
  • Instant web customer support
  • Definitions page

Will my money last throughout my retirement?

Retirement can span a third or more of your lifetime.  Making your retirement portfolio last as long as your working life did, can be a challenge.  By plugging a few simple numbers into the retirement calculator you can help answer this question in a snap.

How much money can I withdraw from my portfolio each year (retirement withdrawal rate)?

This is a crucial question to know the question to. If you withdraw too much, your money will not last your entire retirement.  If on the other hand, you withdraw too little, then you may end up eating macaroni and cheese for dinner every night for no reason.  It is also important to remember the U.S. government has placed minimum required distribution (MRD) requirements on many retirement instruments such as, 401(k)s, 403(b)s, and traditional IRAs. Entering different withdrawal scenarios into the retirement calculator is easy and its results are revealed instantly.

How should my money be allocated?

Unfortunately, many retirees make the mistake of putting all their money in "safe" investment, such as money market accounts and certificates of deposit.  They take this action, because they mistakenly believe that once they retire, they should not take risk of any kind.  The retirement calculator allows you to input any asset allocation you desire.  You can change the allocation until you find the one that is right for your situation.

How will inflation impact my purchasing power?

Inflation has a withering affect on your purchasing power.  Historically, the inflation rate has been about 3 percent.  Thus, with just the average inflation rate of 3 percent, your costs double every twenty-four years.   You can expect to spend as much time in retirement as you did when you worked.  Therefore, you can expect to see your expenses double during your retirement years.  Again the retirement calculator can show inflation's impact on your portfolio immediately.

How will management fees affect my portfolio's performance?

The latest feature added to the Retirement Calculator Version 3.0 is the impact management fees have on your plan.  Usually, management fees account for roughly a one percent loss of your portfolio each year - though this percentage can be as high as 5 percent or more.  One percent may not sound like a insignificant amount, until you consider that on a $500,000 portfolio, that means you will have to make $5,000 a year just to breakeven.  A five percent management fee on that same $500,000 portfolio means you will have to make a whopping $25,000 a year to breakeven. 

How do I keep up-to-date on the latest news impacting my retirement?

To keep informed about retirement topics, try a FREE membership to Retirement Intelligence Information Services. At no cost to join, you will receive a bi-monthly newsletter full of financial information to inform and empower you to have a successful retirement. As an added bonus, www.retirementcalc.com will include the Retirement Calculator Software Version 2.0 (a $24.95 value seen live on CBS TV) for FREE.

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