Little Rock, Arkansas (PRWEB) August 29, 2013
When most people think about earning an income from retirement accounts, they think in terms of interest rates or rate of return on investments. But Eric Hutchinson, president of Hutchinson Financial, Inc., said it is important that retirees and future retires think in terms of withdrawal rate, instead of interest rate. In Hutchinson’s newest online video, he discusses the differences between withdrawal rates and interest rates, and tells retirees why both of these terms matter.
“What is the Difference Between Withdrawal Rate and Interest Rate and Why Does it Matter?” highlights an alternative method of thinking about retirement accounts in which retirees focus on withdrawal rates rather than interest rates.
“There is an important difference between the two concepts. If we talk and think in terms of withdrawal rate, we then put ourselves on a more sound financial footing,” Hutchinson says in the video. “In retirement, we need our income to grow over time to help keep up with inflation. If we invest our money in a well-balanced way, it is possible to grow the principal at a rate to keep up with inflation over time.”
Hutchinson said he and his team of financial planners generally recommend that retirees withdraw no more than 4 - 5 percent of principal in any given year.
The end goal in setting up a withdrawal rate of 4 - 5 percent each year is to preserve the retiree’s purchasing power during their lifetime and to preserve their lifetime savings. Using this withdrawal rate strategy, retirees are not likely to run out of money, no matter how long they live.
Hutchinson provides several examples to explain this approach in the online video. For instance, he notes that long-lasting institutions like charities, universities and hospitals, withdraw from their funds and endowments at a rate of about 4 - 5 percent per year – and these types of institutions are expected to last long into the future, maybe even forever, further proving the reliability of this type of plan.
“As human beings, we won’t last forever, but in retirement, we are at risk that we might just live a long time. We have to manage our financial affairs to stretch our money out to last as long as we do,” he says in the Financial Briefing episode. “One way we can do that is to plan to spend no more than 4 - 5 percent of whatever we have each year. This is the withdrawal rate concept.”
To view “What is the Difference Between Withdrawal Rate and Interest Rate and Why Does it Matter?” in full, or to learn more tips about financial planning, please visit Hutchinson Financial, Inc. online.
About Hutchinson Financial
Hutchinson Financial, founded in 1988, is an Independent Registered Investment Advisory firm based in Little Rock, Arkansas. Hutchinson Financial, Inc. is a fee-only financial planning firm committed to helping all clients reach their individual financial goals. All Hutchinson team members who provide financial planning services and investment advice to clients have professional credentials such as Certified Financial Planner, Chartered Retirement Planning Counselor, Chartered Financial Consultant, Chartered Life Underwriter, or Accredited Investment Fiduciary. To learn more about Hutchinson Financial, Inc., please visit http://www.hutchinsonfinancialinc.com.