From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(April 26, 2006) — With many individuals living 20 to 25 years or more in retirement, there’s an increased likelihood that you could outlive your retirement nest egg. According to the Virginia Society of CPAs, the best way to ensure a financially secure retirement is to carefully manage your retirement savings and withdrawal strategies. While the right strategy for you depends on your individual circumstances, here is some general advice to help you get started.

Keep on top of your investment portfolio

To make the most of your assets, monitor your investment strategy throughout your retirement and make modifications based on the economy and your current and future income needs.

Don’t assume that because you’re retired, you should move all your money to bonds or certificates of deposit. Most CPA financial planners agree that you need a portion of your portfolio — anywhere from 20 percent to as much as 50 percent of your portfolio — in stock to offset inflation. Of course, you should take your personal risk tolerance into consideration in determining your asset allocation.

Understand distribution choices

It is also important to understand how and when you can take distributions from your retirement plan. To meet living expenses in the early years of retirement, it’s best to tap into non-retirement assets. This allows money in your IRA, 401(k), or other qualified plan to continue to grow tax-deferred until mandatory distributions are required at age 70½. The required starting date for distribution is April 1 of the year following the year in which you reach age 70½. Once you reach the required start date, be sure to take at least the minimum distribution. Failure to do so results in stiff penalties.

Since minimum distribution requirements don’t apply to Roth IRAs, it’s typically a good idea to withdraw from these accounts last. All the growth in the Roth IRA is tax free, making this one of your most valuable retirement assets.

Determine an annual withdrawal rate

When it comes to determining how much you can safely withdraw on an annual basis from your retirement nest egg without exhausting it, there are many variables, the most important being your life expectancy. Many online calculators are available to help you predict how long you’re likely to live, but bear in mind that even the best can provide only an educated guess.

Based on historical studies, a 65-year-old with a portfolio invested 50 percent in stocks can withdraw between 4 percent and 5 percent annually, and the same amount (increased by a three percent inflation rate) in each of the succeeding years. For example, if you have a retirement portfolio of $500,000, you could withdraw approximately $22,500 the first year (4.5 percent of $500,000). The second year you could take $23,175 ($22,500 plus three percent inflation) and so on.

Many investment and fund companies offer online calculators to help you determine a safe withdrawal rate. Because many variables go into arriving at an appropriate rate for each individual, it’s best to seek professional advice from a CPA.

Consider an immediate annuity

For a retiree concerned about outliving his or her nest egg, an immediate annuity can mitigate this risk. With an immediate annuity, in exchange for a lump sum of money, an insurance company provides you with a guaranteed income stream with payments made monthly, quarterly or annually.

You may choose to have payments based on your lifetime, both your lifetime and that of your spouse, or for a specific number of years. Most immediate annuities are fixed, which means your payment is certain no matter what happens in the market. Annuities may not be right for everyone, but they are worth considering.

Seek the advice of a CPA

When it comes to managing your income in retirement, the best advice is to start the education and planning process early. To assist you in making the most informed decisions, consult with a CPA.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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