How to Make Your Traditional IRA/401k Plans Last Into Perpetuity
So many retirees are concerned/worried about running out of money before they die. And, with people living so much longer, they have good reason to be concerned. However, there is a simple solution to this problem. Manage your IRA/401k plans so that they last forever or until you die, whichever comes first.
Here is a real/true/factual example of how you can do this. I have all the monies in my IRA/401k accounts well diversified. Diversification is very important. All of these monies, in these accounts, are invested in numerous 'quality' stocks that pay good dividends, between 2.5% and 8% averaging over 4%. You can find good companies that pay these yields if you do your homework and due diligence.
Example of how this system works: Suppose I have $400k in my retirement accounts. Under current rules, I'd be required to make an annual withdrawals of $14.5k when I reach the age of 70 1/2. However, with my annual accrual of 4% of the $400k in dividends, $16k, I'd actually replenish all the money that I withdrew for the year.
This is a practical system, not any pie in the sky. I am not currently of the age of 70 1/2, but I have already implemented the dividend reinvestments and fully expect my retirement accounts to last into perpetuity or until I die, whichever comes first. This is certainly an interesting scenario, think about it.
PS. This example does not take into account an added bonus feature, besides the dividend accrual, the pps of the shares that you own, in your retirement accounts, should also increase in value over the long run. There is no reason that your retirement accounts can't adequately sustain themselves for the rest of your life.
Note: When I post about making one's traditional IRA/401k lasting in to perpetuity, I do make an assumption. I assume that individuals who hope to retire do the required due diligence on how much he/she/they will need to retire and that they commit to saving enough in their retirement plans to facilitate their retirement expenses. Individuals need to firmly commit to their retirement funds while they are young and contribute as much as needed to meet their retirement objectives. Their retirement plans must take a high priority in their finances, higher than expensive vacations, new cars, bigger houses, or other luxury items. Obviously, those who fail to save up enough will run out of money before they die. $50k/$100k/$200k is not enough.
A lot of workers don't even bother to plan or save for retirement. They'll wait until their in their 50's and then they'll realize it's too late. Many think they can't afford to save for retirement, yet they have $100 a month to spend on their phone bills, another $100 a month for their cable tv service, another $80 a month for their internet service, another $1,000 for a tv in every room, 4 cars parked in the driveway etc................. If you've got money for these things and not for retirement savings, well then you need to work until you're 90.
While planning your retirement, remember the story of the ants and the grasshopper.
Your system promises to work well up to early-mid seventies in age, but as you approach 90 years of age, won't the IRA withdraw tables, which are based on remaining life expectancy, force you to withdraw annual percentages that are far higher than the likely dividend income? How do you plan to counter that?
"but as you approach 90 years of age, won't the IRA withdraw tables, which are based on remaining life expectancy, force you to withdraw annual percentages that are far higher than the likely dividend income? How do you plan to counter that? "
Simple solution to your question is that, as I make mandatory withdrawals from my retirement accounts, I'll save/reinvest part of the withdrawal money in non-retirement accounts. Since I don't plan on withdrawing the money from my accounts until I'm mandated to, then I don't really rely on it and can afford to reinvest it after withdrawal.
All retirees who are taking 'mandatory withdrawals' from their retirement accounts should also save and reinvest a portion of those withdrawals in non-retirement accounts.
20 years of reinvesting 'mandatory withdrawals' from retirement accounts can add up to quite a fortune. Then again, I'm not really too worried at what will happen past the age of 90.