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Saving for retirement may seem challenging, but imagine living only on savings. Your nest egg will eventually be your source of income, and it’s important to ensure you can make it last through your golden years. Check out how most people calculate their retirement withdrawals and why the usual benchmark may no longer be relevant.

The Basics

The 4% rule is a basic guideline used to determine the amount a person withdraws from retirement saving accounts each year. The goal is to provide a sustainable rate of money for spending, while maintaining an account balance that will last for as long as the retiree lives. Four percent is considered to be a “safe” rate to ensure your money will last for at least 30 years if you stay invested in a mix of stocks, bonds and cash.

The Challenge

While this rule of thumb has helped financial planners and retirees set withdrawal rates for years, it may be time to re-evaluate. Many are wondering if the rate is actually sustainable, as life expectancy has increased (you can get an idea of what yours may be with this calculator). Retirees who live longer will need their portfolios to last longer. Healthcare costs and other expenses also tend to increase as a retiree ages.

The current low-interest-rate environment also complicates retirement calculations. Yields are low and equity returns are uncertain. In addition, the nature of retirement saving is changing in and of itself.

While some new retirees can count on pension and Social Security payments to supplement their retirement savings, those systems are in danger and more people will have to live without defined-benefit plans.

Making It Work

The 4% rule is a good starting point, but it’s a good idea to evaluate your specific situation. You may have to adjust your withdrawals depending on market conditions and your specific needs.

The first step in making your savings work for you is building a nest egg in the first place. It’s a good idea to evaluate your retirement goals regularly, even once you are in retirement.

You may also need to consider additional retirement income strategies. You should also look for ways to minimize taxes on retirement withdrawals so you can keep your savings to yourself. It can be a good idea to speak with a financial planner or adviser for more help.

Debt can also be a huge weight on your retirement savings. You can see your lifetime cost of debt here to see what you’ll be looking at spending to borrow. A better credit score can lower that total, so check your credit scores for free on Credit.com to see where you stand and what you can do to improve your credit.

Replacing a paycheck and living on a fixed amount may seem intimidating, but making your retirement funds last is crucial. Save as much as you can during your work years and budget as best as possible to ensure you can retire the way you want.

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