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3. $100,000 for someone retiring at age 65 will assure a monthly lifetime income of…
$375 a month. According to the widely known Trinity Study and many
Monte Carlo simulations, to have a high-level of assurance of not out-living their money, retirees should expect to withdraw around 4.5% of their initial invested account a year (the answers are divided by 12 months). Some experts say it's should be closer to 2% – less than $200 a month.
A simple calculation shows roughly the same result: divide $100,000 by 25 years (living from age 65 to 90) – that’s $4,000 – divided by 12 months equals $333 worth of monthly income (assuming the investment performance and inflation are the same…much like a bank savings account). But at the end of 25 years, the account is $0. Yes, annuities may provide larger amounts…but with some drawbacks.
Isn’t this something employees should find out in their 20s and 30s – not when they reach retirement age?
Within the next few years, most employees will retire with much less than $100,000 in their retirement accounts.
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