When you are short on savings, spending down a portfolio in retirement is a treacherous business.
Since you don't know how long you'll live, limit your initial portfolio withdrawal rate to just 3% or 4%, equal to $3,000 or $4,000 for every $100,000 saved. These withdrawal rates represent the percentage of your savings that you would pull out in the first year of retirement.
"Two percent is bullet-proof, 3% is probably safe, 4% is pushing it and, at 5%, you're eating Alpo in your old age," reckons William Bernstein, an investment advisor in North Bend, OR. "If you take out 5% and you live into your 90s, there's a 50% chance you will run out of money."
Retirees could also snag a handsome stream of lifetime income by delaying Social Security until their late 60s, while using savings to pay for their early retirement years. But the fact is, most seniors balk at the idea of delaying Social Security and buying income annuities, because they fear they won't live long enough to reap the benefits. Only 33% delay Social Security to 65 or later to get a larger check.
Source: The Wall Street Journal, January 17, 2007