Estimating How Much of Your Portfolio You Can Spend

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Estimating How Much of Your Portfolio You Can Spend

If you know what percentage of your portfolio you can spend in retirement, then next you need to determine what that means in dollar terms.

How to do it

To do that, tally the value of your retirement portfolio. Include all taxable account balances, as well as money in your tax-deferred accounts, such as IRAs and 401(k)s.

Fill in those figures on the income worksheet.

Next, multiply your withdrawal rate factor by your total investable assets. The result is how much of your portfolio you can spend your first year in retirement.

Here’s an illustration

Let’s take an example. Say you have $500,000 in total investable assets; a 20-year time horizon; a mix of 50% stocks, 35% bonds, and 15% cash; and an 85% confidence level. You’d multiply approximately 6% (the assumption we are using) by $500,000. That would equal a pretax withdrawal rate of about $30,000 per year. Each year, you’d increase that withdrawal rate by the rate of inflation over the prior year.