How Much IRA Income Is Safe to Use Without Risk of Running Out Money?
If you run out of IRA income, what are you going to do for money? The answer to how much IRA income can you take is very simple once you really understand the question.
There is more to it than just running out of money.
The main decision to make is whether or not you want to have money left over to give to your kids or grand kids when you pass on.
Of course you will want to have money until you and your spouse pass on but what about after? Here is why you need the answer to that question.
If you want to have your entire nest egg available as an inheritance then you will need to just use the interest or the growth to provide income while you are alive.
If you don't want to leave an inheritance or it isn't important one way or the other, then you do not just have to use the interest.
You might also have a life insurance policy set up to provide the inheritance.
In that case you do not just have to use the interest.
For IRA income, using principal and interest provides much more IRA income possibilities.
Remember that when we talk about IRA income we really mean all of your retirement income that comes from investments.
When you retire then all of your investment accounts are accounts for you in retirement.
So if some or most of your investments are not in IRA's you will still want to include your other investments in the calculations.
If you want to leave an inheritance then you will be using your interest not your principal.
You will want to use 2-3% less income than your expected return.
So if you are expecting 9% return then only use 6% of your total investment value to live on each year.
Take out the lowest amount possible that will still provide enough income to live comfortably.
The extra return, the 3%, will be reinvested so that next year your account value is higher.
The higher account value for next year can then generate more income for you thus keeping up with inflation.
If you are not leaving an inheritance or you have a life insurance policy in place for the inheritance you can withdraw much more IRA income.
Make a comprehensive income plan and take it slow.
I recommend annuitizing an annuity for income in this case.
I would use short term to begin with.
Think about it like a $50,000 annuity over 5 years might pay a little over $11,000 per year in IRA income.
Your other investments grow in the mean time and in 5 years you might do another one at $100,000 that would provide a little over $20,000 per year in IRA income, maybe $23,000.
These are just examples.
A detailed annuity laddering plan would be needed to see just how much you could pull out each year and be certain to not run out of money.
You would also want to keep one account or annuity that would be used as a just in case account.
It is for the just in case scenario that you live way longer than you plan for.
And you would also want to have a good emergency account.
This option sounds complicated and it is but only at first.
After your initial investment there is nothing to do for 5 years or so.
No worry and no decisions to make.
Your IRA income runs on autopilot, guaranteed, and safe.
The other option, taking a percentage, can be guaranteed as well but usually it is not.
It is a lot more complicated because the market goes up and down and your percentage should most definitely change when the market is down.
It is not guaranteed so your IRA income is not guaranteed and it is at risk of loss.
How much IRA income is safe to take out? It depends on the answer to the question; do you plan on leaving an inheritance? Once you answer that question you can then choose an option and know exactly how much IRA income you can safely use each year.
There is more to it than just running out of money.
The main decision to make is whether or not you want to have money left over to give to your kids or grand kids when you pass on.
Of course you will want to have money until you and your spouse pass on but what about after? Here is why you need the answer to that question.
If you want to have your entire nest egg available as an inheritance then you will need to just use the interest or the growth to provide income while you are alive.
If you don't want to leave an inheritance or it isn't important one way or the other, then you do not just have to use the interest.
You might also have a life insurance policy set up to provide the inheritance.
In that case you do not just have to use the interest.
For IRA income, using principal and interest provides much more IRA income possibilities.
Remember that when we talk about IRA income we really mean all of your retirement income that comes from investments.
When you retire then all of your investment accounts are accounts for you in retirement.
So if some or most of your investments are not in IRA's you will still want to include your other investments in the calculations.
If you want to leave an inheritance then you will be using your interest not your principal.
You will want to use 2-3% less income than your expected return.
So if you are expecting 9% return then only use 6% of your total investment value to live on each year.
Take out the lowest amount possible that will still provide enough income to live comfortably.
The extra return, the 3%, will be reinvested so that next year your account value is higher.
The higher account value for next year can then generate more income for you thus keeping up with inflation.
If you are not leaving an inheritance or you have a life insurance policy in place for the inheritance you can withdraw much more IRA income.
Make a comprehensive income plan and take it slow.
I recommend annuitizing an annuity for income in this case.
I would use short term to begin with.
Think about it like a $50,000 annuity over 5 years might pay a little over $11,000 per year in IRA income.
Your other investments grow in the mean time and in 5 years you might do another one at $100,000 that would provide a little over $20,000 per year in IRA income, maybe $23,000.
These are just examples.
A detailed annuity laddering plan would be needed to see just how much you could pull out each year and be certain to not run out of money.
You would also want to keep one account or annuity that would be used as a just in case account.
It is for the just in case scenario that you live way longer than you plan for.
And you would also want to have a good emergency account.
This option sounds complicated and it is but only at first.
After your initial investment there is nothing to do for 5 years or so.
No worry and no decisions to make.
Your IRA income runs on autopilot, guaranteed, and safe.
The other option, taking a percentage, can be guaranteed as well but usually it is not.
It is a lot more complicated because the market goes up and down and your percentage should most definitely change when the market is down.
It is not guaranteed so your IRA income is not guaranteed and it is at risk of loss.
How much IRA income is safe to take out? It depends on the answer to the question; do you plan on leaving an inheritance? Once you answer that question you can then choose an option and know exactly how much IRA income you can safely use each year.
Source...