Saving for retirement: it’s something we all (hopefully) think about and plan for at some point. If we’re really on our game, we’ve probably got some assortment of 401(k)s, IRAs, diversified market investments, and maybe even a few pieces of silver (metaphorically and literally) stashed away somewhere.
Which is all well and good, but what do we do with it once that marvelous moment we call “retirement” happens? How much of our hard-earned retirement money should we actually be spending?
Well, according to the experts, we should try to adopt the four percent rule. That is, we should withdraw no more than four percent of our total retirement savings every year. So if we’ve got a cool mil in retirement savings, we should only withdraw $40,000 over the course of a year. The goal of this rule is to lessen the likelihood that we outlive our savings; by living on just four percent per year, we’re allowing the rest of the money to continue accruing interest while we spend.
Of course, this isn’t a hard-and-fast law or anything. How much we withdraw can depend on things like the risk level of our investments, our age when we retire, the amount in our retirement accounts, our health, and the performance of the economy as a whole. But it’s a good rule of thumb to keep in mind when we’re figuring out how much we want to have saved by the time we get that gold watch.
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Finance: What is a 401(k)?51 Views
Finance a la shmoop... what is a 401k plan? okay say it with me tax deferred savings
that's it it's really not all that complex for the fancy numbers there all [Complex formula scribbles]
right well when you make money at work you get to defer the tax that you'll pay
on your income or earnings to be paid much later in life and you get to invest
that dough and let it ride tax-free until you take it out of your 401k plan [Money coming out of deferred savings piggy bank]
brokerage account and then at that point well you'll pay ordinary income tax on
your gains well the 401k was a part of the tax code
that was put into motion in the 1980s as the government began to painfully
realize that Social Security wasn't all that secure and that a whole generation
of people who had paid money into Social Security wouldn't get anything back so [People protesting outside the white house]
the government opened the door and made it easy or at least easier for the semi
wealthier masses to save money for their retirement and this was a new idea at
the time a whole new concept like a flying car before then it was mama [Man talking and flying car goes by a window]
corporation who managed the pension money for her employees you know that
sucking off the corporate teat and all that stuff well it fostered a sense of
long-term lifetime loyalty to the company and was all just very you know
IBM like a born in pinstriped blue diapers IBM employee with a hard loyal [Baby boy playing with a flashing rattle]
workforce working away there toiling in the IBM salt mines for 35 years
then retiring at 60 and having smoked a lot dying at age 65 and then that was
all she wrote well that was then this is now it's a different era different
financial pressures so companies don't generally offer pensions today and they
don't generally manage them themselves because the cost of buying real talent
like people who consistently beat the stock market in good times and
bad managing that 401k money is astronomically expensive and generally [Boxing gloves punching the stock market]
speaking corporations can't afford to pay those people nine times whatever
the CEO makes so companies generally contribute some amount of money to a
401k and then they leave it up to the employees to figure out how they want to
invest their retirement savings on their own and that's a good thing most of the
time and you know hopefully it's there when they want to go take it out and
they need the money when they're old and decrepit like like I'm getting...
