Taking Inventory

How Long Will Your Principal Last?

By the time retirement comes, you may have saved a nice little nest egg. Most people think that they will just live off the income generated by the investments and not spend any of the principal (the amount invested). But unless you're willing to reduce your standard of living and drastically cut back your expenses, you may be dipping into your principal sooner than you think. Inflation doesn't stop when you retire. Your purchasing power will be reduced annually by the increase in the consumer price index.

The following table shows how many years your nest egg will last if you take out income and principal. If you withdraw (left column) at the same rate (or less) than the rate of return on your retirement investments (going across) your principal never runs out. If you withdraw at a rate greater than your rate of return, your principal runs out in the number of years shown. For example if you earn 6% and you withdraw 8% your principal runs out in 23 years.

How Many Years Will Your Nest Egg Last?

Return on Your Retirement Investments

Rate of Withdrawal Annually

5%

6%

7%

8%

9%

10%

6%

37

*

*

*

*

*

7%

25

33

*

*

*

*

8%

20

23

30

*

*

*

9%

16

18

22

29

*

*

10%

14

15

17

20

27

*

11%

12

14

15

17

20

25

12%

11

12

13

14

16

19

* Nest egg will not run out

What does this mean in dollars and cents? Let's assume a $200,000 retirement nest egg at age 55 with a 6% rate of return as an example:

If you take out 6% income only, that's $12,000 per year. The $200,000 never runs out.

Alternatively, you could take out 8%, or $16,000 per year. The $200,000 runs out in 23 years. If you retire at age 55, you'll be 78 when the principal runs out.

Most people don't use this strategy with their entire nest egg. They carve out only a portion, say one-quarter or one-half, and consume up to that amount. That still leaves a substantial amount of their nest egg still intact for their lifetime or for their estate.

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*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a Registered Broker-dealer (Member FINRA/SIPC) and SEC-registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. General Electric Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.