Skip Navigation Download Adobe Acrobat Reader 5.0 or higher to view PDFs.
Man looking out a brightly lit window

Financial Learning Center


Taking Inventory

How Long Will Your Principal Last?

By the time retirement comes, you may have saved a nice little nest egg. Most people think that they will just live off the income generated by the investments and not spend any of the principal (the amount invested). But unless you're willing to reduce your standard of living and drastically cut back your expenses, you may be dipping into your principal sooner than you think. Inflation doesn't stop when you retire. Your purchasing power will be reduced annually by the increase in the consumer price index.

The following table shows how many years your nest egg will last if you take out income and principal. If you withdraw (left column) at the same rate (or less) than the rate of return on your retirement investments (going across) your principal never runs out. If you withdraw at a rate greater than your rate of return, your principal runs out in the number of years shown. For example if you earn 6% and you withdraw 8% your principal runs out in 23 years.

How Many Years Will Your Nest Egg Last?

Return on Your Retirement Investments

Rate of Withdrawal Annually

5%

6%

7%

8%

9%

10%

6%

37

*

*

*

*

*

7%

25

33

*

*

*

*

8%

20

23

30

*

*

*

9%

16

18

22

29

*

*

10%

14

15

17

20

27

*

11%

12

14

15

17

20

25

12%

11

12

13

14

16

19

* Nest egg will not run out

What does this mean in dollars and cents? Let's assume a $200,000 retirement nest egg at age 55 with a 6% rate of return as an example:

If you take out 6% income only, that's $12,000 per year. The $200,000 never runs out.

Alternatively, you could take out 8%, or $16,000 per year. The $200,000 runs out in 23 years. If you retire at age 55, you'll be 78 when the principal runs out.

Most people don't use this strategy with their entire nest egg. They carve out only a portion, say one-quarter or one-half, and consume up to that amount. That still leaves a substantial amount of their nest egg still intact for their lifetime or for their estate.

Share Article:
Add to GooglePlus

Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC. Member FINRA (Opens in a new Window)/SIPC (Opens in a new Window).  UniVest Financial Services is a trade name of UniBank. Infinex and UniBank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of, nor guaranteed or insured by, any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.


BrokerCheck