# How to Calculate Retirement Fund Payments

You spend your entire working life building up a retirement fund you can rely on when you stop working. But building that emergency fund is only half of your job. The other half is perhaps even more important -- making sure that retirement fund will last as long as you do, and determining how much income you can expect from the funds you have accumulated over your working life.

1. ## Annuity Option

• If your retirement fund includes an annuity option, you can use that annuity information to determine how much income your accumulated money can generate on a monthly basis. For instance, some pension plans allow workers to choose either an annuity option or a lump sum payment. If you choose the annuity option, you can receive a set amount of money each month. If you choose the lump sum option, you will need to invest the money on your own and determine how much income you can safely draw on those funds.

## Retirement Budget

• Creating a retirement budget is essential for those nearing the end of their working years. Hopefully you already have a budget in place. If not, take the opportunity to create a budget detailing the amount you expect to spend on both the necessities and the extras in life. After you know how much you can expect to spend, add up your sources of income from all guaranteed accounts like pensions and Social Security. Use those figures to calculate your monthly income shortfall, then calculate how much you will need to generate from your retirement fund. For instance, if you need to generate \$1,500 a month from a retirement fund of \$400,000, you could get the cash you need by withdrawing 4.5 percent annually.

## Safe Withdrawal Rate

• Determining a safe withdrawal rate is an essential part of retirement planning. Withdrawing too much money at the start of your retirement can increase the odds that you will run out of money later in your retirement years. Keeping your initial withdrawal rate to 4 percent or less can increase the odds that your money will last as long as you do. For instance, if your retirement fund is \$500,000, a 4 percent withdrawal rate will give you \$20,000 in income.

## Asset Allocation

• How you invest your money in retirement can influence the return on your investment and help your money last longer. Many retirees choose to keep a balanced portfolio, in which half of the money is invested in the stock market and half is invested in bonds and fixed income instruments. This allows the money in the stock market to grow over time, even if there are steep corrections and bear markets along the way. The money invested in bonds and fixed income instruments like certificates of deposit provides a steady income retirees can live on, without having to sell stocks during periods of temporary decline.

Related Searches