Investing Tip - RRIF Withdrawal Strategy

 
Reader Question - I am 67 years old and would like to start drawing down my RRIF. I do not want to wait until 71. I also do not want to be stuck with any pre-set standard tax formulas of 4 or 5% per year or maximum or minimum withdrawals in retirement.
I simply want to withdraw $500 a month, every month. I have $110K. How long will my money last?

Thank you for that more often than not question of how long will my money last in retirement?

All I or we can to is estimate how long this money will last you based on some simple assumptions. Let's assume you earn 7% annual return on the remaining balance after the $500 a month withdrawal. Also assuming you make the withdrawal at the beginning of each month.

Calculation

Calculate the mo. interest rate then divide by 12.
7%/12 = 0.5833%
as a decimal = 0.005833

Calculate the remaining balance after the first withdrawal then subtract the $500 from the initial balance.
$110,000-$500= $109,500

Calculate the Interest earned on the remaining balance by the monthly interest rate. $109,500* 0.005833 = $638.20 (approx)

Calculate the new balance after adding the interest; Add interest earned to remaining balance.
$109,500 + $638.20
=$110,138.20

Repeat the above steps 2-4 for the subsequent months until the balance is depleted or reaches a negligible amount.

Timeline

Based on this calculation, if you continue to make $500 withdrawals at the beginning of each month and earn a consistent 7% annual return, it's estimated that the funds will last approximately 21 years and 5 months.

Please note that this calculation does not account for taxes or inflation and assumes a constant rate of return of 7%. This is simply a rough estimate to show you where you stand now and what you can look forward to.

Summary

This money will last you until you're past age 88. Is that long enough? Only you will know for sure. It does go to show you that each individual circumstance is different in retirement. Our income needs are different.

At home we ask ourselves all the time, When should we start living off our retirement accounts so we can better enjoy life. We certainly don't get bogged down in waiting until age 71 when it is suggested for tax purposes.

My wife and I plan on cashing out all accounts at age 65 regardless of amounts and tax consequences. To us it's all about simplicity and using the money you saved a lifetime for to enjoy now while relatively young and healthy.

What are you planning on doing? Hope this helps:)