We Have $1.6 Million in a 401(k) and $1.1 Million in Other Investments. How Do We Structure Our Withdrawals So We Don't Touch the Principal?

My husband wants to retire in August 2025 when I turn 65. My husband turned 65 in December 2024. We have $1.1 million saved (includes stocks, ETFs and mutual funds) along with $1.6 million in a 401(k).  We will, at that time, start to collect Social Security. What would be a good rule of thumb for how much we could withdraw from our savings/401(k) without touching the principal?

– Shari

At its core, retirement planning is about making informed decisions to ensure your hard-earned savings support your desired lifestyle over the duration of your retirement. The concern you raise is a common one for soon-to-be retirees: How much can I withdraw annually from my savings, brokerage and retirement accounts without depleting the principal? It appears you're taking all the right inputs into account, including your assets, expenses and other sources of retirement income such as Social Security. Exploring each of these factors and evaluating some related questions should help you back into a reasonable withdrawal rate for your retirement.

A financial advisor can help you manage your streams of retirement income and structure your account withdrawals in a way that accounts for your needs. Match with a fiduciary advisor today.

Determining an appropriate withdrawal strategy begins with understanding your true income needs. To identify this, start by evaluating the following:

• What are your annual expenses, and how do you anticipate them changing? Review your spending habits and anticipate how they may change in retirement. For example, commuting costs may decrease, but healthcare and travel expenses might rise.

• Do you have philanthropic and/or legacy planning aspirations? If you intend to donate to charities or support family members, include these goals in your budget.

• What is your family medical history, and how is your health? A realistic estimate of healthcare expenses, including premiums, co-pays and potential long-term care costs, is crucial. Budgeting for additional insurance coverage may be wise depending on your current health and future medical expectations.

• Do you plan on traveling? If travel is a priority, factor in the associated costs for flights, accommodations, activities and leisure items during your trips.

Answering these questions will help you determine how much of your total asset base you'll need to rely on annually. In turn, this exercise will help you identify whether living off the interest and dividends generated by your portfolio is feasible, or if you'll need to tap into your principal. If preserving your principal is a priority, then you may need to make adjustments to your lifestyle or spending habits to align with a sustainable withdrawal rate.