Here's how to not outlive your retirement savings - | Chattanooga News, Weather & Sports

Here's how to not outlive your retirement savings

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NBC News - Planning for retirement is no walk in the park: You have pick a smart investment strategy, search out all the employer matches and other goodies that can boost your savings, and—lest you forget—squirrel away a good chunk of your income.

But building up a solid nest egg is only half the battle. Equally important, and perhaps even more complicated, is figuring out how to safely withdraw money from those savings.

Decisions on when to start taking Social Security, what to do with any defined benefit pensions, and how and when to draw down savings will all have a dramatic effect on the quality of your retirement life. And while almost all experts urge you to sock away as much as possible while you are working, there is no unanimity when it comes to your best plan for using that money in retirement.

"When you are saving for retirement, general guidelines can work pretty well. When you are heading into retirement, you want something specific to your situation," said Judith Ward, a senior financial planner with T. Rowe Price. "There isn't really a good place to go for guidance around this issue."

You may also be confronting a savings gap as your retirement draws near, making your drawdown strategy that much more important. A 2014 Employee Benefit Research Institute survey found that just 55 percent of respondents were somewhat or very confident that they would save enough for a comfortable retirement. And new data from EBRI found that among early boomers facing a retirement savings shortfall, the figure for each individual in a married household averaged $71,299, while for unmarried men it came to $93,576, and unmarried women faced a retirement savings shortfall of $104,821. 

The 4 percent rule

So how can you best use the savings you do have in retirement?

One approach is the 4 percent rule: you calculate 4 percent of your retirement savings in the first year, and then draw down that amount every year. This approach was first broadly proposed by William Bengen, a former financial advisor, in 1994, and it has been applied often enough to be called the Bengen rule. It provides you with both defined income and an easy plan to follow.

But a number of experts take issue with the Bengen rule. "Four percent is a conservative starting point, but people need to every year come back and look at what's going on," said T. Rowe Price's Ward. "If the markets are doing great, you might want to take a little more. If they're not great, tighten the belt."
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