THE NEST EGG STRETCH – 5 Potent Tactics You Can Use

by Neal Frankle, CFP ®

If you are thinking about retirement, one of your biggest questions is how to make sure your nest egg lasts as long as you do. Even if you aren’t going to retire for another 10 years, you might be worrying about being behind schedule on the savings front. Two steep market declines over the last 11 years and a deep recession thrown in have a way of creating a lot of fear for people thinking about retirement. No fear, my friends.

If you run your financial plan and you determine that you’re not going to have the amount of income you’ll need to retire, you still have a few options.

One alternative of course is to simply reduce your annual retirement withdrawals by making permanent cuts in your retirement lifestyle. This may be very difficult to do. I believe that a better option is simply to delay tapping into your retirement account for a year or two.

Before you pooh-pooh this idea, give me a chance to explain. One or two years of extra work can make all the difference when it comes to your retirement income. This maneuver helps in two ways:

First, your retirement investments will have higher balances. And second, you won’t need to rely on your retirement income for as many years. Win-win!

This doesn’t mean you’ll have to continue working for two years longer. I’m simply suggesting that you delay using your retirement accounts to create retirement income for a couple of years. You might be able to do so without working, or you may have to work. That will depend on your own situation. Let’s look at a real example.

Assume you are 65 now, you have $1 million in the nest egg and you want to draw $60,000 each year in retirement. Assume you also want to bump up your withdrawals by 3% every year to adjust for inflation. According to Investor’s Business Daily, your plan blows up in 22 years even though you invest in growth mutual funds. That’s because you run out of money, and it’s back to work at Flippy Burger for you – at 87 years of age. Ouchie.

If you simply push back dipping into the nest egg by two years, your account will last another six. That’s because your balance will be $1.12 million when you start taking withdrawals.

Looking for more ways to stretch the nest egg? How about getting just 1% more on your investments? If you’re able to do that, your money lasts for a total of 35 years.

And of course, the final retirement nest egg stretch is to dip in less. By starting a fun weekend business when you retire or by getting a second job now and holding on to it, you create more income and therefore less of a drag on your retirement investments. If this isn’t so appealing to you, make minor cuts in your spending and you’ll achieve the same thing.

What can you learn from this?

First, you don’t have to be a victim of your investments. There are plenty of strategies you can implement to overcome the impact of tough economics. You don’t need an all-or-nothing approach either.

  • Make minor cuts in spending.
  • Pay a little more attention to your investments and make sure they are the best retirement investments possible.
  • Increase income now or in the future.
  • Delay digging into the nest egg.

You can mix and match all five. Going at it this way, your lifestyle won’t change much and you’ll have a lot less to worry about down the road.

How are you going to stretch your retirement nest egg?



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{ 6 comments… read them below or add one }

Ronald Dodge December 5, 2011 at 6:13 PM

Based on my self studies, I came to the conclusions of the following:

Withdraw only 2% of total investable assets annually (this means a very good majority of the funds must be in ROTH IRAs on account of RMD rules) In Neal’s example, it’s a 6% withdrawal, which is still too high by economists suggestion of 4% annually. I use the 2% cause I factor into account of market risk factor based on the self study of retirement I did back in 2001.

In retirement years, 80% in equity with 20% in cash/bond type investment initially so as to allow the funds keep up with inflation net of taxes.

Look to see if the funds need to be rebalanced (check annually), but if less than 80% of the funds are made up of equity, do NOT move funds from cash/bonds back to equity as this cash/bonds is your safety net for poor economic time period. Instead, just withdraw money from this cash/bonds fund, but don’t let it get below 15% of total investable assets (Ideally not below 20%, but there can be market fluctuations).

Don’t withdraw from the funds until you reach the age of 70 unless you have no realistic choice or you are in poor health. What would happen if you end up living to the age of 110 years?


OneMinuteFinance December 2, 2011 at 8:56 AM

I got to tell you I was talking to my financial advisor and he point blank said that at the age of 28 if i want to retire at 65, I need to have about 5 million in my retirement account to live off 100k a year. Now this might sound alot but given inflation its pretty realistic.


Neal Frankle December 3, 2011 at 4:21 PM

That figure isn’t unrealistic but it doesn’t account for the fact that you may have a pension or social security income to offset. Also, does your plan consider inheritance? Part-time work?

Those astronomical numbers sometimes make people just give up and think they’ll never be able to retire and it’s not true. There are many variables and unforeseen circumstances that you can’t plan for really. You should have a plan and do your best. Once you do that, you can’t do any more. Don’t be discouraged by this high number and don’t think you have to live a totally empty life now in order to put everything into future savings.


Ronald Dodge December 5, 2011 at 7:10 PM

You are right Neal, most people get scared off by such high numbers. For me, I learned to adapt to such rules cause they are rules of life. But then again, I essentially was forced to learn to conform not only to life and social rules, but also to lopsided administrative rules to the T in their harsh cold systems with no regards to anyone elses own good but their own. That in itself along with the hard times I had to deal with very early on in life was what had me to do the self studies I have done, which was how I came up with these various financial rules.


Neal Frankle December 5, 2011 at 8:12 PM

I also spent some time at the school of hard knocks. It was tough but I got a heck of an education.


Ronald Dodge December 5, 2011 at 6:18 PM

That advisor is right. When I mentioned a withdrawal rate of 2%, that means total investable assets needs to be a multiple of 50 of annual withdrawal (100% divide by 2%). As such, $100k * 50 = $5 million. For me when I last checked my numbers, it was a withdrawal rate of $90k, thus $90k * 50 = $4.5 million.

I’m also sick and tired of this newsletter thing popping up on me about 30 seconds after I go onto a page and interfere with either my reading or typing.


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