Kim Snider
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May 21, 2007

Retirement Income Strategies

Your job as Family CFO can be described by three activities: financial planning, asset management and behavior management.


When applied to investing, there should be a good deal of planning on the front-end to determine your money's higher purpose, where you fall on the risk-reward continuum, your investor temperament and then what investments best fit given these parameters. (See yesterday's post for more on this.) Once determined, your investments should only change when you experience a life event which changes your objectives or tolerance for risk.


In fact, once you get started as an investor, if you are doing it right, the planning and asset management portion of the job should take little time and effort. It is the management of sabotaging behaviors that is so demanding.


The one aspect of planning that can get a little sticky occurs on the back-end. After years of building a portfolio, you now need to figure out how much you can withdraw each year to supplement or replace your previous income. This area is less easily understood by investors because it is a fairly novel problem.


Increases in longevity and the shifting burden of retirement savings has made the calculation of your maximum sustainable withdrawal rate very important. Mis-calculate and you could end up running out of money before you run out of breath. On the other hand, an overly conservative calculation will limit your standard of living unnecessarily, just at the time you are supposed to be enjoying the benefits accrued after years of hard work.


Here is a list of some of the various strategies being used:


  • Bill Bengen, who has done the most research in this area, pegs the distribution at 4.4% of the first year's retirement portfolio, with the dollar amount increased by inflation each year. This assumes you will live for another 30 years, don't need to leave an inheritance, and your portfolio will do about as well as the market. This formula will give you a very high probability the money will last for the full 30 years.


Other strategies include:


  • Base distributions on the IRS' IRA tables for single or joint life expectancy as appropriate.
  • Calculate the weighted average balance over the last five years and take a fixed percentage of that number, like 4%, each year.
  • Put one, two or three years of living expenses into a money market account. Use dividends and other distributions from the portfolio to replenish the cash account. If the markets are up the preceding year, you sell equities to raise the money to replenish the cash account. If the markets are down, you keep drawing from the cash account. This avoids selling in a down market.
  • Put one year's income in a money market fund and two year's worth in a short-term bond fund. Each year, the bond fund replenishes the cash account and in the year's when the overall portfolio rises more than 4%, the bond fund is replenished as well.


Another question I am often asked is which accounts to draw from first. As a general rule of thumb, you want to draw down taxable accounts first. But here are some variations for you to consider:


  • Take distributions from a regular IRA to the level where you fill up the 15% tax bracket. The rest would come from taxable accounts. This will reduce required minimum distributions after you reach age 70 1/2, saving you some taxes.
  • In the first couple years of retirement, while you are pulling from taxable accounts, your taxable income is almost totally within your control because you have already paid taxes on that money. This is a great opportunity to move regular IRA's into Roth IRAs and pay very little taxes on the portion moving over.


For those readers who use the Snider Investment Method™, we have two possible formulas for calculating withdrawal rates:

  • 4% - 10% of your stake, depending on account type and size, with a six month reset. (See the alumni web site for more details.)
  • 80% of your average income. (Consult your Chronim advisor if you have any questions.)


Learn more about how to be a great Family CFO in my upcoming class, "The Family CFO's Guide to Investing." I am offering this class in June only - Tuesday, June 5th in Frisco, Wednesday, June 6th in Fort Worth and Thursday, June 7th in Dallas. The best part is, like this article, it is absolutely free with no strings attached. Check the dates and get registered at


And as always, feel free to leave your thoughts and comments below. Specifically, I'd love to hear from you what distribution strategies you are using and whether you came up with them or a financial advisor?




1. Bob Veres. "Taking On Retirement"; Financial Planning; May 2007; pp 45- 46.


Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.



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Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas - Fort Worth. This blog is primarily devoted to empowering individual investors with information to help them be good stewards of their money. Above all, it is about achieving true financial success. Kim's book, How To Be the Family CFO: Four Simple Steps to Put Your Financial House in Order is in bookstores now. Order yours from Amazon or other fine booksellers today.

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