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Use your savings to create an income stream

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Two things should happen to your savings in retirement:

  • You'll tap them to create an income stream.
  • You'll try to make them last as long as possible.

Both of these can be accomplished with the help of a systematic withdrawal plan. Numerous studies suggest that if you follow a disciplined, conservative withdrawal plan, your savings have a good chance of lasting 30 years.

To get started, withdraw no more than 4% of your retirement savings in the first year of retirement. You can transfer the money to a money market fund or checking account to help pay your bills.

Many people feel they have earned a splurge when they retire. But if you spend too freely early in retirement, chances are greater that you could run out of money.

After the first year you might choose to increase your annual withdrawals from savings by the rate of inflation. That way your spending power could keep up with rising prices.

On the other hand, if the market falls, you could skip inflation adjustments some years or even reduce your withdrawal amount.

Retirees who undertake a systematic withdrawal plan like this should consider keeping their remaining savings in a diversified mix of investments, including a significant commitment to stocks. Stocks do have sharp price swings. But they also have shown greater growth potential than bonds or short-term reserves, which may help to sustain your savings over a lengthy retirement.

If your employer's retirement plan does not allow systematic withdrawals, or if it has a fixed distribution period (such as 10 or 20 years), consider rolling over your plan savings to an IRA from which you can take withdrawals over a longer period.

See Jim and Barbara’s story »

All investments are subject to risk. 

Investments in bond funds are subject to interest rate, credit, and inflation risk.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

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