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Just as important as having the right asset allocation is making sure you invest enough. Many big-spending boomers are shocked to learn how little of a portfolio financial advisers say they safely can withdraw in the initial years of retirement to avoid running out of money in old age. Many advisers cite computer modeling showing that retirees under the age of 70 risk depleting their nest eggs if they cash out more than 4% annually -- or $40,000 of a $1 million portfolio.

"Two percent is bulletproof, 3% is probably safe, and 4% is the absolute maximum," says William J. Bernstein, an investment adviser in North Bend, Ore. If the $1 million is in a tax-deferred account, such as an Individual Retirement Account or a 401(k), he notes, "you've got to pay taxes on those assets on the way out." So you have roughly $800,000 to work with -- or $32,000 a year maximum to spend.>>

Dr. Bernstein needs a copy of TurboTax. A married couple taking the standard deduction would only pay $3,365 in Federal taxes assuming the whole $40,000 was taxed as ordinary income. Most retirees would get some of their income from dividends or return of capital that are even taxed at lower rates.

Don't be so hard on him, you don't have all the assumptions that he is working with for the example. Please note that he used an average tax rate of 20% which directly implies that he is using some blended group of tax rates as exist in current tax law (other less sophisticated folks often use one of the marginal tax rates instead). While it is true that if a couple has only $40,000 in income from an IRA/401(k) each year that they will pay about $3.3k in income taxes, that is an almost completely unrealistic scenario today. Todays retirees generally have a few forms of income, almost all have some level of social security (and doesn't part of it start to become taxable at relatively low incomes?), some have pensions of varying sizes, many have insurance policies that provide income, and some even have annuities that provide income. And some have taxable investments that have great flexibility regarding when to take gains for the best tax advantage.
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