Many new retirees and some soon-to-be retirees wonder exactly how much income they will receive in retirement from their 401(k), IRA, and other savings accounts. Sure, you may see a number and think you will receive all of it — but chances are this isn't going to be the case.
Guaranteeing the income you receive in retirement can be best be achieved by picking the right income solution, according to a new study by the Stanford Center on Longevity and the Society of Actuaries.
The study examined the monthly income a 65 year-old couple with $100,000 might receive using different retirement income solutions. These solutions, or generators, were chosen because they have a reasonable chance of delivering retirement income for the rest of one's life, are readily available in the retail marketplace, could be offered in a 401(k) plan, and could be implemented by a knowledgeable "do-it-yourselfer."
The report analyzed three versions of systematic withdrawal, a method in which a retiree invests their savings and then, after retirement, systematically withdraws a portion of their savings with the intent (but with no guarantee) of making that money last for life.
- A strict application of the 4% rule, in which a retiree's annual income is set at an amount equal to 4% of their assets at retirement. This amount is then adjusted each year to reflect increases in the Consumer Price Index (CPI).
- A retiree's annual income equals 4% of their assets at the beginning of each year; subsequent retirement income is adjusted up or down depending on investment performance.
- Annual income is equal to the IRS required minimum distribution (RMD) that applies after age 70½ to deductible IRA and 401(k) accounts; the amount varies based on investments performance.
Soon-to-be retirees don’t need to be confused about how much income they will receive in retirement. Check out the link below, and get yourself on the right track toward the amount of retirement income you need.