Adjusting a Retirement Savings Withdrawal Strategy – FEDweek

Retirement & Financial Planning Report

After you retire, how much money can you withdraw from your portfolio? Many advisers say that a safe initial withdrawal rate is about 4.5 percent of the portfolio’s value: $4,500 for every $100,000 you have invested.

With a balanced mix of stocks and bonds, their standard advice is that you can increase that amount to match inflation and be reasonably sure that your portfolio will provide cash flow for 30 years.

What if you want to withdraw, say, 5.5 percent in Year One of your retirement? That’s risky, but you can reduce the risk by adding flexibility to your withdrawal strategy:

* Reduce the scheduled withdrawal amount by 10 percent when your portfolio values drops sharply. If you were going to take $30,000 from your portfolio, for example, you might cut that to $27,000 after a severe bear market.

* Similarly, plan on increasing the scheduled withdrawal amount by 10 percent–say, from $30,000 to $33,000–after a strong bull market.

This technique will give you more money to spend yet still reduce the risk that your portfolio will be depleted during a long retirement.