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Originally Posted by HalMd
I suspect the poster means lower risk investments like CDs and bond funds.
There are formulas for how much is "safe" to take from your retirement each year during retirement to outlive your money. Surely taking out only the interest portion is one way to do it.
However, keep in mind that, if you live 30 years in retirement, the interest may stay the same each year, but due to inflation those dollars won't go as far.
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There is no such thing as a risk-free investment. There are two kinds of risk. Most people think of investment risk, meaning the investment could lose money. But they forget about inflation risk. The risk that the buying power of the money could be eroded over time. Let's say you put your money in CDs earning 5%. Taxes eat up 1/4 of that, or 1.25%. Inflation takes another 3%, leaving you with a net gain of 0.75%. And if inflation ticks up a little, you'd actually be losing money without spending a penny. There'd be very little interest available to spend and you couldn't touch the principal because then you'd really be in the hole.
The usual advice for retirement spending is 4% of your principal in year one, adjusted for inflation each subsequent year. Hopefully, your accounts will be earning 7% or more. By limiting spending to 4%, you account for taxes and inflation.